Which of the statements is accurate regarding the benefits of the Federal Reserve issuing repurchase agreements (repos) and reverse repurchase agreements (reverse repos).(1 point)

Question

Responses

Banks can buy repos from other financial institutions at a discount. Banks can sell reverse repos to other financial institutions for increased liquidity.
Banks can buy repos from other financial institutions at a discount. Banks can sell reverse repos to other financial institutions for increased liquidity.

Repos result in a temporary increase in a bank's reserves and maintain liquidity in the banking system. Banks can sell reverse repos back to the Federal Reserve at a higher price in a short period of time.
Repos result in a temporary increase in a bank's reserves and maintain liquidity in the banking system. Banks can sell reverse repos back to the Federal Reserve at a higher price in a short period of time.

Banks can sell repos to other financial institutions for increased liquidity. Banks can buy reverse repos from other financial institutions at a discount.
Banks can sell repos to other financial institutions for increased liquidity. Banks can buy reverse repos from other financial institutions at a discount.

Banks can sell repos back to the Federal Reserve at a higher price. Reserve repos result in a temporary increase of a bank's reserves and maintain liquidity in the banking system.

Answer 1

The most accurate statement regarding the benefits of the Federal Reserve issuing repurchase agreements (repos) and reverse repurchase agreements (reverse repos) is:

Repos result in a temporary increase in a bank's reserves and maintain liquidity in the banking system. Banks can sell reverse repos back to the Federal Reserve at a higher price in a short period of time.

This statement correctly reflects the function of repos in providing banks with temporary liquidity while also highlighting the nature of reverse repos as a tool the Federal Reserve uses to manage reserves in the banking system.