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 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.
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.

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 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.

Answer 1

The 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 identifies two key aspects of repos and reverse repos. Repos provide temporary liquidity to banks, while reverse repos allow the Fed to manage the money supply by borrowing funds from banks, which can involve higher pricing in the short term.