If a central bank wants to reduce interest rates it will instruct its traders to:
A) instruct all financial institutions to adjust rates accordingly.
B) reduce liquidity in financial markets.
C) buy bonds on the open market.
D) carry out open market operations by buying shares on the stock exchange.

Question

Quizplus · Accepted Answer

When a central bank wants to reduce interest rates, it typically purchases bonds on the open market. By buying bonds, it increases demand for them, which in turn drives up their price and drives down their yield (the interest rate paid on the bond). This reduction in bond yields spills over into other parts of the financial market, including interest rates on loans and other investments. This process is known as open market operations.

If a Central Bank Wants to Reduce Interest Rates It