Encouragement Of Flows Of Funds For Financial Market Essay

1510 Words Mar 10th, 2016 7 Pages
Encouragement of Flows of Funds to Financial Market In order to encourage flows of fund to the money and bond market, Bank of Korea enlarged the scope of eligible collateral and eligible financial institution counterparties for its open market operations. In November and December of 2008, the bank included bank debentures and certain government agency bonds for use in open market operations, which were originally only Treasury bonds, government-guaranteed bonds and Monetary Stabilization Bonds. In December, 12 more securities company were selected to join the existing 19 banks as Bank of Korea’s counterparties for related-party transaction. In November 2008, the Bank of Korea also resolved to provide 5 trillion won of liquidity support via open market to fragile financial institutions subscribing to Bond Market Stabilization Fund. In December, a total of 2.1 trillion won was supplied. By broadening eligible collateral for Open Market Operation, the bank should expect to have more financial institutions to invested in security and bonds. Since the credit standing of the debt securities improves as they are additionally included as eligible collateral, their demand will increase, which helps improve the market conditions in capital market. By providing liquidity support through purchasing long-term bond, the Bank of Korea increase monetary supply into the market.

Expansion of Bank’s Credit Supply Capacity In order to increase supply of credit through banks, the Bank of…

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