Question

The short-term purchase of securities with a dealer for the Federal Reserve to resell the securities at a later date.

Answer 1

The short-term purchase of securities by the Federal Reserve from a dealer, with the intent of reselling the securities at a later date, describes a **repurchase agreement (repo)**. In this arrangement, the Federal Reserve buys securities—typically government bonds—from a dealer with an agreement to sell them back after a short period, often overnight or within a few days.

Repos are important tools for managing liquidity in the financial system and influencing interest rates. They allow the Federal Reserve to inject liquidity into the banking system or withdraw it, depending on the broader economic conditions and monetary policy objectives.