Asked by Anthony Flesher on Jul 07, 2024
Verified
If the Fed sells Treasury bills then
A) the price of Treasury bills will fall.
B) the market rate of interest on Treasury bills will rise.
C) both the price of Treasury bills will fall and the market rate of interest on Treasury bills will rise.
D) neither the price nor the market rate of interest of Treasury bills will be affecteD.
Treasury Bills
Short-term government securities with maturities of one year or less, sold at a discount from their face value.
Market Rate
The prevailing interest rate available in the marketplace for loans or investments, often used as a reference for setting the rates on loans.
- Gain insight into the crucial role of the Federal Reserve's open market activities, specifically the purchase and sale of governmental securities.
Verified Answer
CE
Chloe EubankJul 08, 2024
Final Answer :
C
Explanation :
When the Fed sells Treasury bills, the supply of Treasury bills increases in the market, leading to a decrease in their price. As the price falls, the yield or market rate of interest on the bills increases to attract demand from investors. Therefore, both the price and the market rate of interest on Treasury bills will be affected by the Fed's decision to sell them.
Learning Objectives
- Gain insight into the crucial role of the Federal Reserve's open market activities, specifically the purchase and sale of governmental securities.