When a Bank Buys a Bond from the Fed

question 384

Multiple Choice

When a bank buys a bond from the Fed

• A) its liabilities decrease.
• B) its liabilities increase.
• C) its reserves initially decrease.
• D) its reserves initially increase.

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Definitions:

Gross Profit

The difference between sales and the cost of goods sold before deducting overhead, payroll, taxation, and interest payments.

FIFO Inventory

Stands for "First-In, First-Out", an inventory valuation method where the oldest inventory items are recorded as sold first.

Perpetual Inventory System

This inventory accounting technique instantly logs the acquisition or sale of inventory by utilizing computerized point-of-sale systems along with enterprise asset management software.

LIFO Inventory

An inventory valuation method (Last In, First Out) where the most recently produced or acquired items are recorded as sold first.