Asked by Stecy Franck on May 30, 2024
Verified
The immediate effect of a member bank's sale of U.S.government securities to the Fed is a(n) :
A) increase in that bank's required reserves.
B) decrease in that bank's required reserves.
C) increase in that bank's excess reserves.
D) decrease in that bank's excess reserves.
E) decrease in the Fed's assets.
Excess Reserves
The amount of reserves that a bank holds in excess of the minimum reserve requirements set by central banking authorities.
Required Reserves
The minimum amount of funds that a bank must hold in reserve against deposits, as mandated by a central banking authority.
- Comprehend the significance and effect of actions taken by the Federal Reserve on banking reserves and the overall financial marketplace.
Verified Answer
OM
Oshante MckeithanJun 05, 2024
Final Answer :
C
Explanation :
When a member bank sells U.S. government securities to the Federal Reserve, the Fed pays the bank, which increases the bank's reserves. This does not affect the required reserves directly but increases the bank's excess reserves, as it now has more funds available beyond what is required to be held in reserve.
Learning Objectives
- Comprehend the significance and effect of actions taken by the Federal Reserve on banking reserves and the overall financial marketplace.