The interest rate in overnight lending among banks increased dramatically. What strategy could be used to improve the situation?(1 point)

Question

Responses

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.

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 issues repurchase agreements with banks to increase the amount of cash bank hold in reserves.

Answer 1

The most appropriate strategy to improve the situation whereby the interest rate in overnight lending among banks has increased dramatically would be:

The Federal Reserve issues repurchase agreements with banks to increase the amount of cash banks hold in reserves.

This action would provide banks with more liquidity, allowing them to lend more freely and potentially lower the interest rates for overnight lending. Repurchase agreements are a tool used by the Federal Reserve to inject liquidity into the banking system.