<p>so admittedly the question as a whole seems slightly confusing. BUT taking the first part: When the Federal Reserve wants to increase the inter-bank lending rates (The "<a href="https://www.investopedia.com/terms/f/federalfundsrate.asp" rel="nofollow noreferrer">Fed Funds</a>" rate) -- it SELLS its own Treasury Bills through something called "<a href="https://www.investopedia.com/terms/o/openmarketoperations.asp" rel="nofollow noreferrer">Open Market Operations</a>." By selling its T-bills, it takes money OUT of the system. Less money in the "system" means the inter-bank lending rate will go up. By selling its securities, it is taking money OUT of the system. Decent video <a href="https://www.youtube.com/watch?v=C31c1sF9iys" rel="nofollow noreferrer">here</a>. </p>

<p>I'm not sure why your teacher asked about common stocks, or longer-term bonds, etc. The Fed lowers/raises the Fed Funds Rate only through buying &amp; selling short-term Treasury Bonds. </p>

CC BY-SA 4.0
2020-03-29T23:20:32.407Z
2020-03-29T23:20:32.407Z
David
<p>What happens to the quantity of treasury bonds when central bank sells short-term bonds?</p>

<p>The overall question for the assignment is: Suppose that the central bank of a country decides to increase the short-term interest rate. Discuss the transmission of this decision via financial markets. Your discussion should include the transmission to the money market, longer bond markets, wider borrowing rates, common stock prices, and the exchange rate.</p>

<p>However, I already got stuck at the first part...</p>

<p>I would highly appreciate any help with this assignment as I am very lost and I do not know if I can just apply the opposite results as when the central bank would lower the interest rate.</p>

<interest-rate><monetary-policy>
Monetary policy: increasing interest rate
Stef
# Monetary policy: increasing interest rate

(Asked by: username_0 on 2020-03-29)

What happens to the quantity of treasury bonds when central bank sells short-term bonds?

The overall question for the assignment is: Suppose that the central bank of a country decides to increase the short-term interest rate. Discuss the transmission of this decision via financial markets. Your discussion should include the transmission to the money market, longer bond markets, wider borrowing rates, common stock prices, and the exchange rate.

However, I already got stuck at the first part...

I would highly appreciate any help with this assignment as I am very lost and I do not know if I can just apply the opposite results as when the central bank would lower the interest rate.

**Tags:** interest-rate, monetary-policy

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## 1 answers

### Answer by username_1 on 2020-03-29. Score: 1

so admittedly the question as a whole seems slightly confusing. BUT taking the first part: When the Federal Reserve wants to increase the inter-bank lending rates (The "[Fed Funds](https://www.investopedia.com/terms/f/federalfundsrate.asp)" rate) -- it SELLS its own Treasury Bills through something called "[Open Market Operations](https://www.investopedia.com/terms/o/openmarketoperations.asp)." By selling its T-bills, it takes money OUT of the system. Less money in the "system" means the inter-bank lending rate will go up. By selling its securities, it is taking money OUT of the system. Decent video [here](https://www.youtube.com/watch?v=C31c1sF9iys).

I'm not sure why your teacher asked about common stocks, or longer-term bonds, etc. The Fed lowers/raises the Fed Funds Rate only through buying & selling short-term Treasury Bonds.


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