What is ‘an open market economy
The open market rate is the rate of interest payable on any debt security that trades on the open market. On the open market price sensitive and can change frequently, as they directly react to changes in supply and demand. Interest rates on such debt instruments as commercial paper and Bank acceptances would fall under the category of open market price.
Breaking down the ‘open market economy
The open market rate differs from the discount rate and other official rates set by the Federal reserve. Federal Committee on open market operations, or change, the Committee, in Federal reserve sets the target for the Federal funds rate, which is the interest that banks charge each other makes overnight loans from their Federal reserve funds. Then the fed uses the activities in the framework of the open market of government securities to try to achieve this rate. This indicator is important because the Federal funds rate, in turn, affects the other main categories of interest rates, including open market rate.
It is important to distinguish between open market rates and open market operations. The latter is a structure in which the Federal reserve can influence and control the supply of reserves in the banking system. This is one of the main tactics used by the fed to implement monetary policy. Operations on the open market, usually involve the buying and selling of government securities by the Central Bank on the open market. This allows you to expand or reduce the amount of money in the banking system in a given time. The purchase of securities creates an infusion of money into the banking system, which promotes growth. On the contrary, when the securities are sold, it will have the opposite effect and lead to the contraction of the economy.
On the open market price on the secondary market
Open market rates shall apply to any debt instrument that trades in the secondary market, where investors buy and sell securities from each other instead of buying them directly from the issuing company. It is sometimes also called aftermarket, and includes investors make deals among themselves, without having to deal with the entity that originally issued the securities. This type of trading activity is that most people, probably, when they think about the stock market. Secondary market-a Category that includes well-known national stock exchanges such as Nasdaq and the new York stock exchange. Bank commercial-loan rates do not fall into this category, as they are largely determined by fed policy.