Question

The Federal Reserve sells Treasury bills to:

A. the FOMC

B. Commercial Banks

C. The New York Stock Exchange

Answer 1

ANSWER 1:

The Federal Reserve sells Treasury bills to: the FOMC.

FOMC stand for Federal Open Market Committee with in a federal reserve system under the US law which overseeing the national open market operation.

FOMC which involves the Federal reserve buying or selling of Treasure bill in open market. This process is done to manipulate the interest rate in the open market from which increase or decrease of total supply of money take place in the open market which affects the interest rates. Here we can understand by when federal reserve buy the treasure bill so it increase the supply of money in the economy and when federal reserve sell the treasure bill so it will decrease the supply of money in the money by removing cash in the economy. Therefore FOMC have direct effect on money supply which affect interest rate By purchasing treasure bills it increase the flow of money due to which interest rate decreases and opposite to that when they sell treasure bill in the open market they will removing money from the market so interest rate will increase.