If Bank a Sells a $100,000 U

question 46

Multiple Choice

If Bank A sells a $100,000 U.S. Treasury bond to the Fed, Bank A's reserves will:

• A) increase by $100,000.
• B) increase by less than $100,000.
• C) not change.
• D) decrease.

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Definitions:

TED Spread

The difference between the interest rates on three-month U.S. Treasury bills and three-month Eurodollars having identical expiration dates, serving as an indicator of credit risk in the general economy.

LIBOR

The London Interbank Offered Rate, once a benchmark interest rate at which major global banks lend to one another.

Treasury-Bill Rate

The interest rate yield on U.S. government short-term debt securities known as treasury bills.

Reward-to-Variability Ratio

This ratio, often called the Sharpe ratio, measures the return of an investment relative to its risk, whereby a higher ratio indicates a more desirable outcome.