What are the open market operations?

The Fed uses open market operations as its primary 1)____ to influence the supply of bank 2)____. This tool consists of Federal Reserve purchases and sales of financial instruments, usually 3)______ issued by the U.S. Treasury, Federal agencies and government-sponsored enterprises. Open market operations are 4)______ by the Domestic Trading Desk of the Federal Reserve Bank of New York under direction from the FOMC. The 5)________ are undertaken with primary dealers.

When the Fed wants to increase reserves, it buys securities and pays for them by making a 6)_______ to the account maintained at the Fed by the primary dealer’s bank. When the Fed wants to reduce reserves, it sells securities and collects from those accounts. Most days, the Fed does not want to 7)_______ or decrease reserves permanently, so it usually engages in transactions reversed within several days. By 8)_________ securities, the Fed influences the amount of bank reserves, which affects the federal 9)__________, or the overnight lending rate at which banks 10)__________ reserves from each other.

b) Read more information about Municipal Bonds. Choose from the paragraph A-H the one which fits each gap 1-8. The first letter is given.

A.pay taxable interest to be sold

B.at prices that cover their expenses

C.general obligation bonds or revenue bonds..

D.an individual’s marginal tax rate were higher than 10 percent

E.possession of the bond itself constitutes proof of ownership

F.government, corporate, and municipal

G.a specifically designated revenue stream

H.purchase or construction of facilities to be leased to private firms

Historically, interest paid on bonds issued by state and local governments has been exempt from federal income taxes. Such interest may be exempt from state income taxes as well.

In 2003, the percentage difference (not the percentage point difference) between the yield on long-term U.S. government bonds and the yield on long-term municipals was about 10 percent. Thus, if 1) a_____________, the after-tax promised return would be higher from municipal bonds than from taxable government bonds. (Although this difference might appear small, there is a credit spread in municipals just as in corporates.)

Municipal bonds typically are designated as either 2) g__________. General obligation bonds are backed by the “full faith and credit” (and thus the taxing authority) of the issuing entity. Revenue bonds are backed by 3)_a_____________, such as the revenues from a designated project, authority, or agency, or by the proceeds from a specific tax.

Frequently, such bonds are issued by agencies that plan to sell their services 4) a____________, including the promised payments on the debt. In such cases, the bonds are only as good as the enterprise that backs them… Industrial development bonds are used to finance the 5) p______________. Municipalities have used such bonds to subsidize businesses choosing to locate in their area by, in effect, giving them the benefit of loans at tax-exempt rates.

Some municipal bonds are still sold in bearer form; that is, 6 ) p___________. Historically in the United States, most public bonds 7) g_________ were bearer bonds. Now, the Internal Revenue Service requires bonds that 8) p_________ in registered form.

Fill in the table on the basis of the text and other available resources. Get ready to speak about municipal bonds.

	Municipal issuer	Underwriter	Brokers	Bond holder
role
functions

Make up a dialogue between an expert on municipal bonds and a journalist of a financial magazine. Discuss current situation on the municipal market. Give as many arguments and examples as possible.

12. Prepare a report in the form of a presentation on one of the following topics:

1.General obligation and revenue bonds.

2.Role and functions of Municipal issuer, Underwriter, Brokers and Bond holder.

3.Taxability of municipal bonds

4.Interest Rates of municipal bonds

5.Liquidity of municipal bonds

6.The risk ("security") of a municipal bond

Write the summary of the text (250 words). Use the active vocabulary of the unit.

To write a summary, use your own words to express briefly the main idea and relevant details of the piece you have read. What was it about and what did the author want to communicate?

Translate into English.

1.Проблемы распределения доходов и вопросы социальной справедливости тесно связаны с государственными финансами

2.Правительства должны относиться по-разному к домохозяйствам с высоким доходом и низким доходом.

3.Когда частные рынки начинают неэффективно распределять товары и услуги происходит сбой в рыночной системе.

4.Внешние эффекты, информационные преимущества, сетевые эффекты могут привести к сбоям в функционировании рынка.

5.Разница между государственными расходами и доходами - это дефицит.

6.Для финансирования своих капитальных расходов государство, муниципалитет или округ выпускают муниципальные облигации в качестве долгового обеспечения.

7.Муниципальные облигации могут быть разными, предлагать различные преимущества, риски и налоговые льготы.