While under applicable law CE programs are intended to promo

While under applicable law, C&E programs are intended to promote ethical as well as law-abiding (compliance) behavior, as a practical matter much more attention is generally by companies paid to compliance than ethics. Does too great an emphasis on corporate compliance “crowd out” corporate ethics? Is the deterrence model that provides the key motivator for C&E programs flawed due to the operation of what could be considered “C&E moral hazard” (i.e., managers reap the benefits of crime but the costs of non-compliance — which tends to be prosecuted years after the offense, when the managers may have left the company — are borne by shareholders?) Do C&E programs do enough to prevent/address misconduct by high-ranking corporate officials or is C&E, as practiced, mostly for “the little people” in a company? What are the attributes of an effective C&E program? In this regard, please outline the C&E program that you would recommend for your corporation if you were asked to propose a program.

Solution

The federal funds rate is the interest rate at which one commercial bank lend to other commercial banks overnight without any collateral. While excess reserves is the bank reserves left after depositing reserve requirement. Increase in federal funds rate means increase in the cost of borrowing money from other banks. Increase in interest on excess reserves means Fed will pay more interest to commercial banks who are holding more excess reserves so in this case banks are not in favour of increasing interest rate as they get money from the Fed in the form of interest. There is no need to increase short term interest rate by banks because they get funds from the Fed as interest.

If Fed wants to raise short-term interest rate then it must also increase discount rate because this will lead to expensive borrowing for banks. When banks have to pay more and force banksfor borrowings from the Fed then they also increase their own interest rate.