- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 4. Monetary Policy
- Subject 2. Monetary Policy Tools and Monetary Transmission
CFA Practice Question
When the Fed sells securities in the open market, it ______
II. creates bank reserves.
III. directly influences the monetary base.
IV. directly influences the federal funds rate.
I. reduces bank reserves.
II. creates bank reserves.
III. directly influences the monetary base.
IV. directly influences the federal funds rate.
Correct Answer: I and III
IV: It indirectly influences the rate.
User Contributed Comments 2
| User | Comment |
|---|---|
| cleopatraliao | Banks use their reserves to pay for the securities so reserves decrease:) |
| magus | By extension, shouldn't the action of selling securities impact the Fed funds rate? (indirect impact) |