The Most Widely Used Tool of the Federal Reserve Is

question 38

Multiple Choice

The most widely used tool of the Federal Reserve is:

• A)buying and selling securities for its own portfolio.
• B)changing the interest rate charged to commercial banks on very short-term loans.
• C)changing reserve requirements on commercial bank time or demand deposits.
• D)fiscal policy.
• E)None of the above

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Definitions:

T-bill Rate

The interest rate earned by investors in U.S. Treasury bills, which are short-term government securities.

Out-of-the-money

Describes an option that would not make money if it were exercised immediately because its strike price is not favorable compared to the current market price of the underlying asset.

Intrinsic Value

The perceived or calculated true value of an asset, investment, or company based on fundamental analysis rather than current market price.

Equilibrium

A state in which market supply and demand balance each other, resulting in stable prices and no tendency for change.