Financial Markets Book Financial Markets For The Rest Of Us
An Easy Guide To Money, Bonds, Futures, Stocks, Options, And Mutual Funds
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by Robert Hashemian

Page 12

Federal Home Loan Mortgage Corporation (FHLMC) Rate - The FHLMC, known now as Freddie Mac, is a public (shareholder owned) corporation chartered by Congress to increase the supply of money that mortgage lenders can make available to home buyers. Freddie Mac conducts its business by buying investment-quality mortgages from lenders, packaging the mortgages into (mortgage-backed) securities, and selling the securities to investors. The FHLMC rate is the interest rate on these securities, which is paid by the mortgage borrowers (e.g., homeowners) as mortgage rate.

Prime Rate - The prime rate is a benchmark for many consumer and business loans, and at one time it was the rate banks charged their best customers for loans. Interest rates on loans (such as those of credit cards) are typically arrived at by adding percentage points to the prime rate depending on the loan type and associated risk factors.

The Fed Effect

The question that now arises is how the Fed goes about determining its Monetary Policy? This task falls on the policy-making arm of the Fed known as the Federal Open Market Committee or FOMC. The FOMC is charged under the law with overseeing open market operations, the principal tool of national monetary policy. These operations influence the amount of reserves available to depository institutions or banks.

The FOMC is composed of the seven members of the Board of Governors and five of the twelve reserve bank presidents. The president of the Federal Reserve Bank of New York is a permanent member; the other presidents serve one-year terms on a rotating basis. All the presidents participate in FOMC discussions, contributing to the committee's assessment of the economy and of policy options, but only the five presidents who are members of the committee vote on policy decisions.


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