Who is the Fed?

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Key Words from this lesson: FED (Federal Reserve), Market Condition & Interest Rate, Currency, Asset Valuation.

What does the Fed do?
- Maximize employment and stabilize prices.
- Supervise and regulate banks.
- Maintain stability of the Financial System.
- Service debt for the US Government.

Interesting Facts:
- Before 1913, the US had over 30,000 currencies in circulation.
- The FED is actually an independent institution, with government regulation and supervision.


Market Conditions and Interest Rate:
- In a bull market (leading to a greed cycle) the Fed can raise interest rate to try and calm the market.
- In a bear market (a fear cycle) the Fed can cut interest rate to try  and stimulate the market.

Market Condition and Investments:
Typically investors can compare the relative yields of investing in bonds/stocks, to decide which offers more attractive returns.
- When interest rate is high, it is advantageous to buy bonds. Bond Coupons will offer good rates (to entice lenders) and if the interest rate subsequently falls, then the market price of the bond will increase with higher demand. 
- When interest rate is low, it is more advantageous to buy stocks, especially in the lows of a bear market (collect dividends and wait for market recovery). Stick with companies that have little or no debt, positive earnings, and strong Price to Book ratios (margin of safety). 


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