The interest rate in overnight lending among banks increased dramatically. What strategy could be used to improve the situation?(1 point) Responses The Federal Reserve issues repurchase agreements with banks to increase the amount of cash bank hold in reserves. The Federal Reserve issues repurchase agreements with banks to increase the amount of cash bank hold in reserves. The Federal Reserve tightens the reserve requirements in order to have banks hold more funds in the Federal Reserve branch banks. The Federal Reserve tightens the reserve requirements in order to have banks hold more funds in the Federal Reserve branch banks. The Federal Reserve could increase interest rates so that banks can charge higher interest rates to their best customers. The Federal Reserve could increase interest rates so that banks can charge higher interest rates to their best customers. The Federal Reserve issues reverse repurchase agreements so banks earn a profit within a short period of time. The Federal Reserve issues reverse repurchase agreements so banks earn a profit within a short period of time.

Answer 1

The Federal Reserve issuing repurchase agreements with banks to increase the amount of cash banks hold in reserves would be an effective strategy to improve the situation of dramatic increase in overnight lending interest rates among banks. This would provide banks with more liquidity, easing the pressure on the overnight lending market and potentially lowering interest rates.