Introduction Coca Cola, like any other business, deals with the affects of monetary policy set by the United States Federal Reserve Bank. The three tools used by the Federal Reserve to control monetary policy are the discount rate (federal funds rate), open market operations (buying and selling of bonds) and the reserve ratio requirement. The following will discuss the monetary policy tools used by the Federal Reserve Bank and its affects on The Coca Cola Company and other businesses. Federal Funds Rate By definition, the federal funds rate is the interest rate at which private depository institution (mostly banks) lend balances (federal funds) at the Federal Reserve to other depository institutions, usually overnight.
Changing the target rate is one form of open market operations that the Chairman of the Federal Reserve uses to regulate the supply of money in the United States in the U.S economy. Short-term interest rates were relatively stable during the first half of the funds’ fiscal year.
Toward the middle of the second half, however, short-term rates started to move down a little bit when concerns about the strength of the housing and credit market and the current economy led the Federal Reserve to reduce short-term rates. The Federal Reserve cut the federal funds rate by 25 basis points (0.25%) and pumped $41 billion of short-term reserves into the markets. On the daily basis, most businesses operate regardless of the Federal rate and completely independent of it. Coca-cola sells Coke by the truckload regardless of the trickle-down effect of the Federal Funds Rare. In addition, it generated gobs of excess cash that allowed it to service virtually and interest rate the banks threw at it. The Coca-cola company reports that the earnings per share of $1.77 for the year, versus $1.23 in the prior year. In addition, cash from operations has increased 15% to 5.5 billion. In addition, the fourth quarter earnings per share of $0.38 and the worldwide unit case volume growth of 3% in the fourth quarter and 4% for the full year. Opinions on if the Federal Reserve will raise interest rates in the future abound, with conventional wisdom siding with a rate increase. However, the decision probably will not affect what happens to stock prices as much as it would with news of corporate earnings surprises. With the benchmark lending rate at 1.5%, rates are still quite low – past economic recoveries have seen rates at 3% or higher at this stage.
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CocaCola – Monetary Policy And Its Affects. (2018, Feb 04). Retrieved from https://graduateway.com/cocacola-monetary-policy-and-its-affects/