For those who are relatively new to Forex Trading, the Federal Open Market Committee (FOMC) is an important component of the Federal Reserve System in the United States.

In my book, the FOMC is one of the most important government bodies in the United States. Their every single decision making has the ability to cause quite a significant impact, not just on the on the US market alone but the entire currency markets as a whole.

The FOMC makes key decisions about raising and lowering the interest rates and the growth of the United States money supply. It is the undoubtedly the “Heart & Soul” of United States national monetary policy.

To understand more about the FOMC and its policies, you will need to first understand some of the commonly used terminology and these may include the following :

Open Market Operations

• It simply refers to the buying and selling of US government treasury securities in the open market in order to expand or contract the amount of money in the banking system.

• Purchases of treasury securities inject money into the banking system and stimulate growth while sales of treasury securities withdraws money from the banking system and dampens growth.

Discount Rate

• It refers to the interest rate that the Federal Reserve charges the banks when they borrow short term funds.

• It is also the interest rate used in determining the present value of future cash flows.

Reserve Requirements

• Also known as “Required Reserves”, it is the requirements regarding the amount of funds that banks must hold in reserve against deposits made by their customers.

• This money must be in the bank’s vaults or at the closest Federal Reserve bank.

Federal Funds Rate

• It is the interest rate at which banks charge each other for loans, usually for overnight loans.

• The interest rate that the borrowing bank pays to the lending bank to borrow the funds is negotiated between the two banks, and the weighted average of this rate across all such transactions is the Federal Funds Effective Rate.
• The Federal Funds Target Rate on the other hand is determined by a meeting of the members of the FOMC which normally occurs eight times a year about seven weeks apart. The committee may also hold additional meetings and implement target rate changes outside of its normal schedule.

In a nutshell, the FOMC is charged under US law with the responsibility of overseeing the nation’s open market operations.

Basically, it uses Open Market Operations to influence the supply of money in the U.S. economy so as to make the Federal Funds Effective Rate follow the Federal Funds Target Rate.

Open market operations together with the discount rate and reserve requirements are some of the principal tools of monetary policy.

The FOMC sets monetary policy by specifying the short-term objective for those operations, which is currently a target level for the federal funds rate.

It also directs operations undertaken by the Federal Reserve System in foreign exchange markets, although any intervention in foreign exchange markets is coordinated with the U.S. Treasury, which has responsibility for formulating U.S. policies regarding the exchange value of the dollar.

Knowing when the FOMC convenes and releases the rate announcement is an essential component when it comes to currency trading.

Here are the dates for the 2010 FOMC Calendar- Federal Open Market Committee Fed Meetings

• January 26 & 27, 2010
  
  - Rate Announcement: Wed. January 27th, 2:15 pm ET
• March 16, 2010
  
  - Rate Announcement: Tue. March 16th, 2:15 pm ET
• April 27 & 28, 2010
  
  - Rate Announcement: Wed. April 28th, 2:15 pm ET
• June 22 & 23, 2010
  
  - Rate Announcement – Wed. June 23th, 2:15 pm ET
• August 10, 2010
  
  - Rate Announcement: Tues. Aug. 10th, 2:15 pm ET
• September 21, 2010
  
  - Rate Announcement: Wed. Sep. 21rd, 2:15 pm ET
• November 2 & 3, 2010
  
  - Rate Announcement – Wed. Nov. 3rd, 2:15 pm ET
• December 14, 2010
  
  - Rate Announcement – Tues. Dec. 14th, 2:15 pm ET

Remember, before you place any trades, do check out these dates first.

Have a safe and profitable trading day ahead.

* Forex Singapore – Your Forex Trading Success Begins Here.