An increase in the deposits of foreign central banks held with the Federal Reserve banks results in a decline in the domestic banking system's reserves.

Question

Quizplus · Accepted Answer

When foreign central banks increase their deposits with the Federal Reserve, it can lead to a reduction in the reserves available to the domestic banking system because these deposits are considered liabilities of the Fed, which can offset the reserves held by domestic banks.

An Increase in the Deposits of Foreign Central Banks Held