19
QuizMultiple Choice

Government Agencies

Question 19 • Financial Math - MA2007 CR

Which of the following is not a way in which the Federal Reserve (“the Fed”) and its policies affect banks?

Answer
A
The Fed sets a maximum on the interest rates banks can charge for loans or credit.
B
The Fed’s required reserve policy limits how much money banks can lend out.
C
The Fed determines at what price banks must lend money to one another.
D
The Fed serves as “the bank’s bank,” lending other banks money when necessary.

Explanation

The Fed does not set a maximum interest rate that banks may charge customers for loans or credit, so choice A is the exception. Reserve requirements can affect how much banks are able to lend, and the Fed influences rates in the interbank lending market through its monetary policy. It also acts as a bank for banks, including by providing loans in certain circumstances.

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