Open Market Operations

Changes in borrowed reserves

Changes in reserve requireents

Dynamic Open Market Operations

Strategies Implemented to increase or decrease the level of available funds

Defensive Open Market Operations

Strategies implemented to preempt changes in available funds

Primary Dealers

A bank or securities broker/dealer that trades directly with the FED

TRAPS

RePurchase Agreements

Matched Sale-Purchase Agreements

TRAPS

 Primary trading system the FED uses to perform open market operations

RePurchase Agreements

 Contract in which a seller of securities agrees to buy back those securities at a specified time and price.

Matched Sale-Purchase Agreements

An agreement where the FED sells securities and agrees to buy them back in a short period of time (usually less then 2 weeks)

Fed has Complete control over the volume

Flexible and Precise

Easily Reversed

Quickly Implemented

Discount Policy:

Discount Window, Primary Credit(standing lending facility), Secondary Credit, Seasonal Credit, Lender of last resort to prevent financial panics

Discount Window

Credit facilities in which financial institutions go to borrow funds from the FED.

Primary Credit

Instituation created by the FED in order to provide overnight loans to primary dealers in exchange for eligible collateral.

Secondary Credit

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Seasonal Credit

Any type of credit arrangement that permits corporate borrowers to consistently pay their overhead and other expenses despite seasonal components of revenue generation

Lender of Last Resort

An institution, usually a country's central bank, that offers loans to banks or other eligible institutions that are experiencing financial difficulty or are considered highly risky or near collapse.

3% of first 48.3 Million, 10% above 48.3 Million.

Fed can vary the 10% between 8% and 14%

No Longer Binding for Most Banks

Can cause Liquidity problems

Increases uncertainty for Banks