Final paper – 8 pages – international finance
The major components of the monetary system include the central bank, commercial banks, payment systems and financial markets.
1. Central Bank: The most important component of a country’s monetary system is its central bank. This institution controls the money supply in an economy by setting interest rates and issuing currency. Central banks also act as advisors to governments on economic policy, are responsible for stabilizing prices, and provide liquidity to other banks through open market operations. Examples of central banks include the Federal Reserve (U.S.), European Central Bank (EU), People’s Bank of China (China) and Reserve Bank of India (India).
2. Commercial Banks: These are private type institutions that provide various banking services such as deposits, loans and payments processing to their customers. They accept deposits from individuals or businesses in the form of savings accounts or time deposits; they then lend out those funds to borrowers in need by providing them with mortgages, business loans or personal loans at varying levels of interest rate depending on risk assessment and creditworthiness . Commercial banks are also used as intermediaries between buyers and sellers who wish to make payments for goods or services using electronic means like debit cards or wire transfers.