Question

If the Federal Reserve sells a Treasury bond to a bank, what will be the effect on the interest rate the bank charges its customers for a loan?
A.The interest rate will decrease since there are fewer available funds for the bank to loan.

B. The interest rate will decrease since there are more available funds for the bank loan.

C.The interest rate will increase since there are more available funds for the bank to loan

D. The interest rate will increase since there are fewer available funds for the bank to loan

Answer 1

Answer:

D. The interest rate will increase since there are fewer available funds for the bank to loan

Explanation:

Answer 2

Answer:

D. The interest rate will increase since there are fewer available funds for the bank to loan

Explanation:

Banks often have as priority have liquidity in order to be able to loan money to its users, that it´s why banks give interests rates to those that have their money safely guarded with them, since they can use that money to loan it to other clients and generate interests with that loans, when banks buy treasury fonds they loose that liquidity and have less funds available, which makes them increase the interest rates.