When the Fed Purchases Government Securities from a Commercial Bank

question 26

Multiple Choice

When the Fed purchases government securities from a commercial bank, the bank

• A)loses its ability to make loans.
• B)automatically becomes poorer.
• C)loses equity in the Fed.
• D)receives reserves that can be loaned out.

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Definitions:

Board Of Directors

A group of individuals elected to represent shareholders and oversee the management and major decisions of a corporation.

Stock Warrants

Financial instruments that give the holder the right, but not the obligation, to buy shares of a company at a specified price before the warrant expires.

Redeemed

Refers to the process of exchanging a financial instrument, such as a bond or coupon, for its cash value or for another specified benefit.

Specified Price

The agreed-upon price for goods or services stipulated in a contract.