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andytrader

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tT
发表于 2011-7-11 15:13 | 只看该作者

Bank Sells Securities to Fed

required, included, money, deposits
If a bank sells some short term securities to the Fed , what does it do with the money ? i.e how is that money treated ?Are both short term sec and money included in required reserves identically ? i.e. bank can keep its deposits in cash or short term sec?
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Mechanic

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发表于 2011-7-11 15:13 | 只看该作者
If the bank sells treasuries to the fed then the money supply increases and interest rates will decrease.

This is newly created money that gets credited to bank's reserve accounts. The bank is then free to lend it to businesses and individuals as long as they meet the reserve requirement. The idea is that with more money (greater supply) in the system, the lower the cost of money (interest rates).

I am not sure about how different forms of short term money are treated in each bank's required reserves. I think that there are a number of securities that could be counted as required reserves including short term treasuries, cash, and other money market insturments. I don't think they will test you on this though.

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