If the Federal Reserve decides to purchase securities from the Bank of England at the latter's request and the Fed adds those securities to its portfolio then which of the following effects will occur?
A) U.S. bank reserves will decline
B) U.S. bank reserves will rise
C) Interest rates are likely to rise, other factors held equal
D) Security prices are likely to fall, other factors held equal
E) None of the above

Question

Quizplus · Accepted Answer

When the Federal Reserve purchases securities, it pays for these securities by crediting the bank's reserves, thus increasing U.S. bank reserves. This action is part of open market operations, a tool used by the Fed to manage the money supply and influence interest rates.

If the Federal Reserve Decides to Purchase Securities from the Bank