Practice Quiz

FINRA Series 6

Category - Series 6

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The Federal Reserve announces that it plans to buy $3.89 billion in Treasury securities on the open market. All else equal, which of the following is a likely result of this Fed action?
  1. Interest rates will rise, causing security prices to fall.
  2. Money supply will increase, causing interest rates to fall.
  3. Stock and bond prices should increase.
  4. Both B and C are likely results of this Fed action.
Explanation
Answer: D - If the Federal Reserve buys Treasury bills on the open market, the money supply is increased, which causes interest rates to fall, and a decrease in interest rates results in an increase in stock and bond prices, all else equal.
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