The Trading Desk has determined that a positive reserve need exists but expects the need to be temporary. What can the manager do to temporarily increase the amount of reserves in the system?
A)engage in open market outright purchases
B)engage in open market outright sales
C)engage in a system repurchase agreement
D)engage in a reverse repurchase agreement

Question

Quizplus · Accepted Answer

Engaging in a system repurchase agreement would allow the manager to temporarily increase the amount of reserves in the system. This involves the Fed buying government securities from a dealer, with an agreement to sell them back at a later date. This increases the amount of reserves in the system temporarily, as the dealer receives payment for the securities in the form of reserves. The Fed is then able to take back the reserves when the securities are sold back. Outright purchases (A) and reverse repurchase agreements (D) may result in a more permanent increase in reserves, while outright sales (B) would decrease reserves.

The Trading Desk Has Determined That a Positive Reserve Need