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MGT604 - Management of Financial Institutions - Lecture Handout 04

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The main monetary policy instruments available to central banks are open market operation, bank reserve requirement, interest-rate policy, re-lending and re-discount (including using the term repurchase market), and credit policy (often coordinated with trade policy). While capital adequacy is important, it is defined and regulated by the Bank for International
Settlements, and central banks in practice generally do not apply stricter rules.

To enable open market operations, a central bank must hold foreign exchange reserves (usually in the form of government bonds) and official gold reserves. It will often have some influence over any official or mandated exchange rates: Some exchange rates are managed, some are market based (free float) and many are somewhere in between ("managed float" or "dirty float").

Interest Rates

By far the most visible and obvious power of many modern central banks is to influence market interest rates; contrary to popular belief, they rarely "set" rates to a fixed number. Although the mechanism differs from country to country, most use a similar mechanism based on a central bank's ability to create as much fiat money as required.

The mechanism to move the market towards a 'target rate' (whichever specific rate is used) is generally to lend money or borrow money in theoretically unlimited quantities, until the targeted market rate is sufficiently close to the target. Central banks may do so by lending money to and borrowing money from (taking deposits from) a limited number of qualified
banks, or by purchasing and selling bonds. As an example of how this functions, the Bank of Canada sets a target overnight rate, and a band of plus or minus 0.25%. Qualified banks borrow from each other within this band, but never above or below, because the central bank will always lend to them at the top of the band, and take deposits at the bottom of the band; in principle, the capacity to borrow and lend at the extremes of the band are unlimited. Other central banks use similar mechanisms.

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MGT613 - Production / Operations Management - Lecture Handout 35

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Related Content: MGT613 - VU Lectures, Handouts, PPT Slides, Assignments, Quizzes, Papers & Books of Production & Operations Management


Learning Objectives

  • Discuss benefits and requirements of MRP.
  • Explain how an MRP system is useful in Capacity Requirements
  • Benefits and shortcomings of MRP
  • MRP II and MRP.

MRP: A Recap

  1. Material Requirements Planning (MRP) is software focusing on production planning and inventory control system used to manage manufacturing processes.
  2. An MRP system is intended to simultaneously meet three objectives:
    1. Ensure materials and products are available for production and delivery to customers.
    2. Maintain the lowest possible level of inventory.
    3. Plan manufacturing activities, delivery schedules and purchasing activities.

    4. Read more: MGT613 - Production / Operations Management - Lecture Handout 35