When the Fed undertakes a repo transaction:
A) it pulls excess reserves out of the financial system.
B) banks have defaulted on loans, prompting the Fed to repossess assets of the bank.
C) it borrows money, using government bonds for collateral.
D) it loans money in exchange for government bonds being posted as collateral.

Question

Quizplus · Accepted Answer

In a repo transaction, the Fed loans money to financial institutions, and in return, these institutions provide government bonds as collateral.

When the Fed Undertakes a Repo Transaction