Question

Match the items.

Answer 1

Answer:

1. Discount rate  
2. Excess reserves
3. Federal funds market
4. Federal funds rate
5. Fractional reserve banking
6. Monetary policy
7. Money multiplier
8. Open market operations
9. Required reserve ratio
10. Required reserves
11. Term auction facility

Explanation:

1. The discount rate is the interest rate fixed by the federal reserve bank to lend to other banks.  
2. The excess reserve is the part of reserve held by the banks which are in excess of required reserves.
3. Federal funds market is the market for borrowing funds for a short period of overnight.
4. The rate of interest charged in this market is termed as federal funds rate.
5. The frictional reserve is the most common lending method used by banks worldwide. In this system, banks keep only a part of total deposits in cash form and loans the rest.  
6. Monetary policy is the policy used to affect the money supply in the economy. The tools used in monetary policy are open market operations, required reserve ratio, etc.
7. Money multiplier represents the amount of money banks are able to generate with each dollar of reserves.  
8. Open market operation is the term used to define the buying and selling of government securities by the federal reserve system as a method to affect money supply.
9. The fraction of total reserves that a bank is required to keep in hand to pay to depositors is called required reserve ratio.
10. The minimum balance that is to be maintained by a commercial bank is called the required reserve.
11. The term auction facility is a short term program which is used to increase liquidity in the credit market in the US.