Question

If the manager of the open market desk hears that a snowstorm is about to strike New York City, making it difficult to present checks for payment there and so raising the float, what defensive open market operations will the manager undertake$?$

Short answer

Defensive open market activities are carried out to counteract market imbalances produced by unforeseen and unanticipated circumstances.

Step-by-step solution

Introduction

Defensive open market activities are used to counteract unfavourable changes in circumstances that affect the monetary base negatively or positively.

Fluctuations in Treasury Deposits with the FRS or changes in the float are examples of these moves.

Explanation

The open market desk manager will use a defensive open market sale approach to counteract the effects of the bloated monetary base.

Because the banks will not be ready to process its checkable facilities, the increase in floats will be kept to a minimal.

This will assist the desk in controlling the fluctuations that occurred in New York by allowing the desk to dispose of securities that will be brought back in a short period of time.

The short time of return of assets will assist the Federal Reserve in replenishing reserves by repurchasing securities as soon as they become available.