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When the Fed lends money to a commercial bank what does the bank do?
Wiki User
∙ 11y ago
pays the Federal funds interest rate on the loan.
Wiki User
∙ 11y ago
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Who regulates interest rates?
To a certain extent the banks do. But the Fed, which lends money to banks, can have an impact on it depending on what interest they charge the banks.
What best explains why the money supply is increased when the Fed buys Treasury bonds?
When the Fed buys Treasury bonds, it increases the amount of deposits in people's bank accounts.The purchase of bonds increases the amount of deposits in people's bank accounts, which enables banks to loan more money
Why is the money supply decreased when the Fed sells some of its Treasury bonds?
Selling bonds decreases the amount of money that bondholders have in the bank.
How does the Fed lower interest rates?
In reality, the Fed does not lower interest rates. It lowers the rate charged to banks to borrow money. This usually results in a lowering of commercial rates.
What best explains why the money supply is increased when the fed buys treasury bond?
When the Fed buys Treasury bonds, it increases the amount of deposits in people's bank accounts.The purchase of bonds increases the amount of deposits in people's bank accounts, which enables banks to loan more money
What does the Fed do for commercial banks?
The main thing the Fed does is that it is the Bank that Banks deposit their money in.
What are the disadvantages when a commercial bank is borrowing from the FED?
It's over 9000.
Who regulates interest rates?
To a certain extent the banks do. But the Fed, which lends money to banks, can have an impact on it depending on what interest they charge the banks.
What do the Fed do to the money supply to discourage bank loans?
decrease
Why do some people say the money is borrowed into existence?
I have been trying to get to the heart of this matter myself. The reason that people say that is because to the best of my knowledge it is borrowed into existence. When the FED wants to expand the monetary base it calls up the treasury and ask to buy a bond. Which is a debt instrument and then "prints" the money up out of thin air to buy the bond. Then that newly created money is lend to regional banks. That newly created money is then lent out at a 10 percent reserve ratio. So the bank gets 1000 from the FED and lends out 900; that same 900 is deposited into another bank and is lent out at a 10 percent reserve ratio. So 810 is loaned out. Can you see that there was only 1000 and it has turned into 1810. So when the bank lends out money it is creating new money. In other words when you go in and take out a loan the money doesn't exist until you sign on the dotted line. All money is created in this way Money is Debt. If someone can refute this claim please do.
What best explains why the money supply is increased when the Fed buys Treasury bonds?
When the Fed buys Treasury bonds, it increases the amount of deposits in people's bank accounts.The purchase of bonds increases the amount of deposits in people's bank accounts, which enables banks to loan more money
Why is the money supply decreased when the Fed sells some of its Treasury bonds?
Selling bonds decreases the amount of money that bondholders have in the bank.
Why is the money supply decreased when the fed sells some of its treasury bond?
Selling bonds decreases the amount of money that bondholders have in the bank.
If the Fed. Gov't. takes over a bank like Bank Of America, with whom I have a corportae bond, will I lose that investment?
No, Bank of America is FDIC insured so your money is safe there.
How does the Fed lower interest rates?
In reality, the Fed does not lower interest rates. It lowers the rate charged to banks to borrow money. This usually results in a lowering of commercial rates.
How does a commercial banking system create money?
Banks create money by loaning out money that was deposited with them. Here's an example: Andy deposits $100 at the bank. The bank then loans out $80 to Bill. The amount of the $100 that the bank received as a deposit that can be loaned out depends on the required reserve ratio as set by the Fed. At this point, Andy has $100 and Bill has $80 in purchasing power. So the money supply has essentially increased from $100 to $180, thus "creating" money. Further money creation can be achieved if Bill went to a bank and deposited his $80, then that bank could (assuming the required reserve ratio is 20%) loan out $64 to Carl, etc etc.
What best explains why the money supply increases when the fed buys treasury bonds?
When the Fed buys Treasury bonds, it increases the amount of deposits in people's bank accounts. The purchase of bonds increases the amount of deposits in people's bank accounts, which enables banks to loan more money
