BACHELOR OF BUSINESS ADMINISTRATION

Detailed explanation-1: -The Federal Reserve buys and sells government securities to control the money supply and interest rates. This activity is called open market operations .

Detailed explanation-2: -By buying or selling government securities (usually bonds), the Fed-or a central bank-affects the money supply and interest rates. If, for example, the Fed buys government securities, it pays with a check drawn on itself.

Detailed explanation-3: -OMO also affects interest rates because if the Fed buys bonds, prices are pushed higher and interest rates decrease; if the Fed sells bonds, it pushes prices down and rates increase.

Detailed explanation-4: -Effective Fed Funds Rate The Fed sets a target range for the fed funds rate by setting the upper and lower limits, which banks then base their loans off. The Fed averages the interest rate banks charge each other overnight-this is the effective federal funds rate.

Detailed explanation-5: -Conversely, when the Fed sells securities to banks, this means they have less money on hand to lend out. The less money on hand means that banks will increase interest rates to earn the most on their limited supply of reserves.