An open market transaction intended to change the level of bank reserves is a
A) repurchase agreement.
B) reverse repo.
C) dynamic operation.
D) defensive operation.

Question

Quizplus · Accepted Answer

An open market transaction that aims to alter the level of bank reserves is known as a dynamic operation. In such a transaction, the central bank purchases or sells securities in the open market, which influences the supply of reserve balances held by banks. The new level of reserves impacts the ability of banks to extend credit and influence the overall level of interest rates in the economy. Repurchase agreements and reverse repos are specific types of open market operations, while defensive operations do not refer to any specific type of transaction.

An Open Market Transaction Intended to Change the Level of Bank