Which of the following letters on the graph represents the ON RRP (Overnight Reverse Repurchase Agreement) offering rate?

• A. C
• B. D
• C. B
• D. A

Answer: (D)

Verified step by step guidance

1. Step 1: Understand what the ON RRP (Overnight Reverse Repurchase Agreement) offering rate represents. It is the interest rate at which the Federal Reserve offers to borrow funds overnight from eligible financial institutions, effectively setting a floor for short-term interest rates.
2. Step 2: Identify the key rates on the graph, such as the federal funds rate, the discount rate, and the ON RRP offering rate. The ON RRP rate is typically positioned below the federal funds rate target range but above other short-term rates to provide a floor.
3. Step 3: Analyze the graph to locate the letter that corresponds to the rate just below the federal funds rate target range, which is the typical position of the ON RRP offering rate.
4. Step 4: Compare the positions of letters B, C, and D on the graph relative to the federal funds rate and other benchmark rates to determine which one aligns with the expected position of the ON RRP rate.
5. Step 5: Conclude that the letter representing the ON RRP offering rate is the one that matches the expected position on the graph, which is letter A, as it is correctly placed below the federal funds rate target range.