In a reverse repo transaction,
A) banks return foreclosed property to the previous owner.
B) banks sell foreclosed property to new owners.
C) the Fed borrows money from ﬁnancial institutions.
D) the Fed loans money to ﬁnancial institutions.

Question

Quizplus · Accepted Answer

In a reverse repo transaction, the Fed borrows money from financial institutions, usually overnight, by temporarily selling securities with the agreement to buy them back at a slightly higher price. This allows the Fed to control the money supply and influence interest rates. Options A and B relate to foreclosed property, which is not directly related to a reverse repo transaction. Option D is incorrect because the Fed is the one borrowing money, not lending.

In a Reverse Repo Transaction