Do they stand there and put 20 billion dollars in an account and start the bidding at 5 bucks or something???
2007-12-22 05:12:10 · 4 answers · asked by JoannaB3 3 in Social Science ➔ Economics
Ok....so, it isn't the acual money that they are auctioning off...it's the interest rate that will be charged for that institution to BORROW the money from the Federal Reserve?
2007-12-22 05:22:14 · update #1
No,
There is a minimum of amount that they are bidding on they don't have to bid on the entire amount. The institution that do the bidding are large banks, lending institutions, or institutional investors like pension funds.
They bid on the interest rate that they will pay the government for the use of the money.
2007-12-22 05:20:00 · answer #1 · answered by don_sv_az 7 · 0⤊ 0⤋
Not absolutely sure, but it's not free money -- banks have to pay interest on these loans and put up collateral. I think the "bidding" part of the auction means a bank says "OK I'll pay 4.62% interest and put up THIS STUFF as my collateral".
Seems that part may be a bit of a formality though and it's kind of a dutch auction, as the Fed will accept any crappy securities for collateral and it ends up setting the one prevailing interest rate for each auction.
Really it's just a way of injecting liquidity without technically "giving away" cash for free.
To your addition -- yes, that's a good way of saying it.
2007-12-22 13:21:06 · answer #2 · answered by KevinStud99 6 · 0⤊ 0⤋
I've never heard of the "feds' auctioning money. However any monies gained from an auction can/could be refered to as "auction money". If this helps.
2007-12-22 13:16:55 · answer #3 · answered by Anonymous · 0⤊ 1⤋
they start the biding at a precise expense and if more people would like to buy that stuff then it is decided on who will pay the most and the money goes to the person who is selling the stuff
2007-12-22 13:16:42 · answer #4 · answered by Anonymous · 0⤊ 1⤋