Question

A securities dealer does a reverse repo, the dealer

A. borrows money.
B. sells Treasury bills to the Fed.
C. lends money.
D. borrows from another bank in the federal funds market.

Answer 1

In a reverse repo, a securities dealer sells Treasury bills to the Fed in exchange for cash.

The correct answer is B. sells Treasury bills to the Fed.

In a reverse repo, a securities dealer sells Treasury bills to the Federal Reserve in exchange for cash. This transaction allows the dealer to borrow money from the Fed and increase the amounts of funds available to lend to the business sector and consumers.