CFA Practice Question

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CFA Practice Question

When the Fed sells securities in the open market, it ______

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)
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