Answer:
The correct answer is A. If the Fed decides to reduce bank reserves, it can sell government bonds.
Explanation:
A bond is a transferable security which constitutes a claim on its issuer, it is therefore representative of medium, long-term financial debt, sometimes even in perpetuity. This debt is issued in a given currency, for a defined period and gives the right to the payment of fixed or variable interest, called a coupon which is sometimes capitalized until maturity. Certificates of deposit, or commercial paper, are considered short-term financial instruments, and are therefore quite separate from bonds. Bonds are rated according to the risk profile of their issuers by rating agencies. There is a great diversity of securities on the bond market.
The issuer of a bond is the borrower; the subscriber or the holder of a bond is the creditor. A bond is frequently negotiable and can be listed on a stock exchange. In practice, securities are traded mainly over the counter. In the event of liquidation, the creditors who are lenders of money have a priority right over the shareholders, who distribute a liquidation bonus after all the creditors have been paid.
