Asked by Jacob Corpening on Jun 29, 2024
Verified
If the Fed buys Treasury bills,then
A) the price of Treasury bills will rise.
B) the market rate of interest on Treasury bills will fall.
C) the price of Treasury bills will rise AND the market rate of interest on Treasury bills will fall.
D) neither the price nor the market rate of interest on treasury bills will be affecteD.
Market Rate
The prevailing price or interest rate at which goods, services, or securities are bought and sold in a competitive marketplace.
- Scrutinize the relationship between the market for government securities and its effects on financial liquidity and interest percentages.
Verified Answer
AG
Alyssa GreenJul 03, 2024
Final Answer :
C
Explanation :
When the Fed buys Treasury bills, the increased demand causes the price to rise. As the price rises, the yield (or market rate of interest) falls, as there is an inverse relationship between price and yield. Therefore, both the price and market rate of interest on Treasury bills will be affected.
Learning Objectives
- Scrutinize the relationship between the market for government securities and its effects on financial liquidity and interest percentages.