Central banks are one of the key participants in global financial systems given their rolein formulating monetary policy thus impacting interest rates, credit and money supplyand therefore economic growth and inflation.

Required:

a) Compare and contrast the organizational structure and operations of the USFederal Reserve and the European Central Bank. Highlight three key differencesand how they impact the role that they play in their respective financial systems.(10 marks)

b) In order to implement effective monetary policy, central banks should beindependent from government. Discuss using relevant examples to illustrate andsupport your reasoning.(5 marks)

c) Consider a bank policy to maintain 15% of deposits as reserves with the ReserveBank of Australia. The bank currently has US$150 million in deposits and holdsUS$4.75 million in excess reserves. What is the required reserve on a newdeposit of U$11 million?(5 marks)