Understanding Monetary, Credit, and Exchange Policies

Posted on Sep 24, 2025 in Business Administration and Management (BAM)

Monetary Policy, Credit Policy, and Exchange Policy

Monetary Policy: It is an economic policy that uses money as a control variable to ensure and maintain economic stability.

Credit Policy: It is a set of measures used by monetary authorities to determine the allocation of financial resources to different operators in the form of loans, inducing growth in strategic areas or economic sectors and priorities.

Exchange Policy: The aim of the exchange policy, as well as monetary policy, is to maintain the external value of the national currency and, consequently, the competitiveness of its exports, especially in relation to its main trading partners.

Function of Government in the Financial Market

The government represents the people and safeguards their savings.

Purpose:

  • Regulate and promote competition.
  • Prevent issuers from defrauding investors.
  • Promote stability in the financial system.
  • Restrict foreign companies active in excess money control.
  • Prohibit executives from using information for their own benefit.

Four Areas of Risk

  1. Credit Risk: Failure to pay credit obligations (default).
  2. Operational Risk: Systems failure or fraud.
  3. Regulatory Risk: Compliance with regulatory topics.
  4. Market Risk:
    • Liquidity
    • Interest Rate

CAMEL Bank Admon Model

Based on the use of a set of representative indicators of capital adequacy, it assesses and summarizes the financial, operational, and regulatory factors.

Key Components of CAMEL:

  • Capital: Measures the strength of an institution and its ability to withstand losses.
  • Assets: The evolution of its composition and quality are essential to capture anomalies.
  • Administration: Higher levels of efficiency, sustainability, and growth.
  • Profits: Reflect profits and increase capital resources and liquidity.
  • Growth: Important because of constant demands from customers.

Financial System Law

  1. Goals
  2. Regulating Institutions
  3. Definition of Financial Intermediation: A public interest activity.
  4. Bank secrecy is regulated by law.
  5. What are the entitlements when administrative failures are detected? (CNBS investigates).
  6. What actions can be taken? Forced sale and rescue.

FOSEDE (Deposit Insurance Fund)

  1. What is FOSEDE?

    It’s a Decentralized Institution of the Presidency of the Republic, assigned to the Central Bank of Honduras, which operates completely independently with technical, administrative, and budgetary responsibility for administering the Deposit Insurance Fund.

  2. What is the Deposit Insurance Fund?

    It constitutes, together with the deposit refund mechanism, the means to ensure financial system stability by payment of the sums insured. It is a protection system to secure the return of coverage given to deposits made by the public in private banks, savings and loan associations, and finance companies duly authorized which were entered into compulsory liquidation under the Act, by the National Commission of Banking and Insurance.

  3. What depository obligations are guaranteed and protected by FOSEDE?

    Savings deposits, time deposits, certified checks, and cash money. Coverage Amount: 9632.92

  4. What happens when the owner of a deposit insurance coverage of deposits is liable for any concept of the institution of the financial system that has been declared compulsory liquidation?

    In this case, compensation proceeds immediately. If there is a loan balance not covered, it will continue and be charged to the debtor under the conditions agreed with the institution.