TRANSACTION 7:BUYING GOVERNANCE SECURITIES

The FOMC buys and sells government securities to set the money supply. The is process is called open
market operations. The government securities that are used in open market operations are Treasury
bills, bonds and notes. If the FOMC wants to increase the money supply in the economy it will buy
securities

Open market operations (OMO) refers to the buying and selling of government securities in the open
market in order to expand or contract the amount of money in the banking system, facilitated by the
Federal Reserve

Federal Open Market Committee

The Federal Open Market Committee (FOMC) is the monetary policy making body of the Federal
Reserve System. The FOMC is composed of 12 members--the seven members of the Board of Governors
and five of the 12 Reserve Bank presidents. The FOMC schedules eight meetings per year, one about
every six weeks or so.

What is the meaning of government securities?

A government security is a bond issued by a government authority with a promise of repayment upon
maturity. Government securities such as savings bonds, treasury bills and notes also promise periodic
coupon or interest payments.

What is the goverment bond?

A government bond or "'sovereign bond"' is a bond issued by a national government, generally with a
promise to pay periodic interest payments and to repay the face value on the maturity date.

Why would you buy a government bonds? Investors buy bonds because: They provide a
predictable income stream. Typically, bonds pay interest twice a year. If the bonds are held to maturity,
bondholders get back the entire principal, so bonds are a way to preserve capital while investing
1. What is the meaning of FOMC?
a. Federal Open Marketing Company
b. Federal Open Market Committee
c. Federal Open Market Cyber
d. Federal Open Market Consistent

2. What is the goverment bond?

a. is a bond issued by a national government, generally with a promise to pay periodic interest
payments and to repay the face value on the maturity date.
b. are issued by the federal government to finance its budget deficits
c. issued by companies or financing vehicles with relatively strong balance sheets.
d. bonds are issued by companies or financing vehicles with relatively weak balance sheets.

3. Open market operations (OMO) refers to?

a. the monetary policy making body of the Federal Reserve System
b. set the money supply
c. the buying and selling of government securities in the open market in order to expand or
contract the amount of money in the banking system, facilitated by the Federal Reserve
d. the face value on the maturity date.

4. How many times does FOMC conduct a meeting?

a. two meetings per year, one about every 3 weeks.
b. Five meetings per year, one about every 5 weeks.
c. eight meetings per year, one about every six weeks or so.
d. three meetings per year, one about every eight weeks or so.

5. The FOMC is composed of how many members?

a. 10 members
b. 12 members
c. 14 members
d. 13 members