Financial Markets and Institutions Exam 1 Practice 2026 - Free Practice Questions and Study Guide

The core structure of the Federal Reserve System is built around three elements working together: the Board of Governors, the twelve regional Federal Reserve Banks, and the Federal Open Market Committee (FOMC). The Board of Governors provides overall leadership, sets broad policy directions, and oversees the system. The twelve regional banks carry out the policy in practice, supervise banks within their districts, and deliver various financial services. The FOMC is the policy-making body that actually sets monetary policy tools and targets, primarily through open market operations; it consists of the seven governors plus five of the twelve regional bank presidents, with the New York Fed president having a permanent seat and the others rotating.

This arrangement is what ties national policy to regional implementation and to the actions that move monetary policy, making these three components the essential core. The other options list agencies and institutions that are not part of the Federal Reserve System—Treasury and regulatory bodies like the IRS or SEC, international organizations such as the IMF or World Bank, or other U.S. regulators like the OCC, FDIC, or NCUA—so they don’t form the core structure of the Fed.