The interest rate in overnight lending among banks increased dramatically. What strategy could be used to improve the situation?
A. The Federal Reserve tightens the reserve requirements in order to have banks hold more funds in the Federal Reserve branch banks
B. The Federal Reserve issues reverse repurchase agreements so banks earn a profit within a short period of time
C. The Federal Reserve could increase interest rates so that banks can charge higher interests rates to their best customers
D. The Federal Reserve issues repurchase agreements with banks to increase the amount of cash bank hold in reserves
A. The Federal Reserve tightens the reserve requirements in order to have banks hold more funds in the Federal Reserve branch banks.
By tightening the reserve requirements, banks will be required to hold a larger portion of their funds in reserve, reducing the amount of funds available for overnight lending. This will help increase the interest rate in overnight lending among banks and improve the situation by making it less attractive for banks to lend out their funds overnight.