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

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

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 highlights that repos provide liquidity and temporary reserve increases for banks, while reverse repos involve banks selling securities back to the Fed, typically at a higher price, thus managing their excess reserves effectively.