SIE (Securities Industry Essentials) Practice Exam 2025 - Free SIE Practice Questions and Study Guide

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What is defined as a central bank purchasing bonds and securities in the open market?

Open market operations

The correct answer is quantitative easing, which refers to a central bank's method of purchasing bonds and securities in the open market in an effort to increase the money supply and encourage lending and investment. This action is generally taken during periods of low inflation and slow economic growth when traditional monetary policy tools, like lowering interest rates, have become ineffective.

Quantitative easing works by providing liquidity to financial institutions, which can help to lower interest rates further and stimulate borrowing and spending by businesses and consumers. As the central bank buys these assets, it increases their price and lowers their yield, encouraging a flow of resources into the broader economy.

Understanding this process is crucial for grasping how central banks attempt to influence economic conditions and counteract recessionary pressures.

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Quantitative easing

Capital injection

Fiscal stimulus

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