Question

is there anything that the fed does that can effect how much money or reserve banks...

is there anything that the fed does that can effect how much money or reserve banks keep at the fed

Homework Answers

Answer #1

Yes, the FED does a lot of things that affect how much money they keep with the Bank i.e. themselves.

  • Open market operations: If the Fed wants more money for themselves i.e. less money in the market they do the open market selling of the Bonds in the market. By selling bonds and getting money for it the reserve with the FED rises and when they buy bonds from the market the reserve goes down.
  • Setting the discount rate: If FED wants more money in reserve i.e. less in the market they increase the discount rate (discount rate is the interest which the FED charges from the other banks while lending money) higher the discount rate the lower the banks demand and higher the reserve and vice versa.
  • Set the reserve rate requirement: FED also set the reserve requirement which the bank should keep with them. Higher the requirement more money will be in the reserve.  
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