This new monetary policy tool makes extra funds available to banks at low interest rates.
A)open market operations
B)discount rate
C)term auction facility
D)reserve requirement

Question

Quizplus · Accepted Answer

The term auction facility (TAF) provides banks with an opportunity to borrow funds directly from the central bank through an auction process. The interest rate on these loans is usually lower than the discount rate, making it an effective tool for injecting liquidity into the banking system. Open market operations involve the buying and selling of government securities, the discount rate is the interest rate at which banks can borrow directly from the central bank, and reserve requirements mandate that banks hold a certain percentage of their deposits as reserves. While all of these tools can impact the money supply, the TAF is the most relevant to the scenario presented.

This New Monetary Policy Tool Makes Extra Funds Available to Banks