Matched Sale-Purchase Transactions

Billions of dollars

Federal Reserve System outright transactions

Repurchase Agreements

Outright Purchases and Sales

Transactions on an outright basis occur largely through auctions in which dealers are requested to submit bids to buy or offers to sell securities of the type and maturity that the Federal Reserve has elected to sell or to buy. The dealers' bids or offers are ar­ranged according to price, and the Federal Reserve accepts amounts bid or offered in sequence, taking the highest prices bid for its sales and the lowest prices offered for its purchases, until the desired size of the whole transaction is reached. The Federal Reserve also conducts securities transactions with several official agencies, such as foreign central banks. Occasionally the Federal Reserve reduces its holdings of securities by redeeming maturing securities rather than rolling them over at Treasury auctions, as it usually does.

When a temporary addition to bank reserves is called for, the Fed­eral Reserve engages in short-term repurchase agreements (RPs) with dealers; that is, it buys securities from dealers who agree to repurchase them by a specified date at a specified price (table 3.3). Because the added reserves will automatically be extinguished when the RPs mature, this arrangement is a way of temporarily injecting reserves into the depository system.

Repurchase agreements for the Federal Reserve account may be conducted on an overnight basis or on a so-called term basis. Most term RPs mature within seven days, and dealers sometimes have the choice of terminating the transaction before maturity. The ab­sorption of reserves due to premature terminations by dealers may also suit the needs of the Federal Reserve. Such terminations often occur when the availability of reserves to depository institu­tions is greater than anticipated, which tends toreduce the bor­rowing costs that dealers face elsewhere.

Transaction	1^st year	2^nd year	3^rd year	4^th year
Purchases	25.2	31.4	34.1	36.9
Sales	7.6	.1	1.6
Redemptions	5.6	1.3	2.2	1.5
Total	38.4	32.8	37.9	38.5

Whenever the Federal Reserve arranges RPs with dealers, the dis­tribution of the transaction among dealers is determined by auc­tion. Individual dealers may enter several offers at various interest rates. The Federal Reserve arranges all the offers in descending order and then accepts those offers with the highest rates up to the dollar amount needed to meet the reserve objectives.

When the Federal Reserve needs to absorb reserves temporarily, it employs matched sale-purchase transactions with dealers. These transactions involve a contract for immediate sale of securi­ties to, and a matching contract for subsequent purchase from, each participating dealer. The maturities of such arrangements do not usually exceed seven days. The initial sale causes reserves to be drained from the banking system; later, when the Federal Re­serve purchase is implemented, the flow of reserves is reversed.

Matched sale-purchase transactions are typically arranged in Treasury bills. The Federal Reserve selects a bill in which it has a substantial holding and invites dealers to state an interest rate at which they are willing to purchase the bills for same-day delivery and to sell them back for delivery on a subsequent day. It then ac­cepts the most advantageous (lowest rate) bids to the point that sufficient reserves are withdrawn.

Дата добавления: 2014-12-29