CFA Practice Question

CFA Practice Question

Which of the following is incorrect?
A. The purchase of Treasuries by the FED increases demand for bonds, pushing up bond prices and pushing down the interest rate.
B. If the FED increases the reserve ratio, it would lead to an increase in money supply.
C. The two primary methods by which the FED influences interest rates are Open Market Operations and Changing the Discount Rate by which the FED loans money through its Discount Window.
Explanation: The sale of Treasuries by the FED removes cash from the system, which has a multiplier effect (reserve ratio) in removing liquidity from the system and thus pushing up interest rates. If the FED increases the reserve ratio, it would lead to a decrease in money supply.

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