When the Fed Uses Open Market Operations to Sell Some

question 5

Multiple Choice

When the Fed uses open market operations to sell some of its Treasury securities, there will be

• A)an outward shift in the supply schedule of loanable funds.
• B)an inward shift in the supply schedule of loanable funds.
• C)no shift in the supply schedule of loanable funds.
• D)an outward shift in the demand schedule for loanable funds.

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Definitions:

Exercised

Refers to the act of implementing the rights granted by a financial contract, commonly in options trading where a buyer may execute the option.

Hedge Ratios

Financial ratios used to calculate the optimal amount of exposure needed to hedge (protect against risk) a position or portfolio.

Long Calls

An option strategy involving the purchase of call options, giving the buyer the right, but not the obligation, to purchase a security at a specified price within a certain time frame.

Delta

In finance, a measure of the sensitivity of an option's price to a change in the price of the underlying asset, indicating how much the price of the option is expected to move based on a $1 change in the underlying asset.