If the Fed decides to reduce bank reserves, it can Question 1 options: A) sell government bonds. B) extend discount loans to banks. C) purchase government bonds. D) print more currency. easynotecard

The correct answer is A. If the Fed decides to reduce bank reserves, it can sell government bonds.

Explanation:

A bond is a transferable security which constitutes a claim on its issuer, it is therefore representative of medium, long-term financial debt, sometimes even in perpetuity. This debt is issued in a given currency, for a defined period and gives the right to the payment of fixed or variable interest, called a coupon which is sometimes capitalized until maturity. Certificates of deposit, or commercial paper, are considered short-term financial instruments, and are therefore quite separate from bonds. Bonds are rated according to the risk profile of their issuers by rating agencies. There is a great diversity of securities on the bond market.  

The issuer of a bond is the borrower; the subscriber or the holder of a bond is the creditor. A bond is frequently negotiable and can be listed on a stock exchange. In practice, securities are traded mainly over the counter. In the event of liquidation, the creditors who are lenders of money have a priority right over the shareholders, who distribute a liquidation bonus after all the creditors have been paid.