Matched Sale-Purchase Transactions

When the Federal Reserve needs to absorb reserves temporarily, it employs matched sale-purchase transactions with dealers. These transactions involve a contract for immediate sale of securi­ties to, and a matching contract for subsequent purchase from, each participating dealer. The maturities of such arrangements do not usually exceed seven days. The initial sale causes reserves to be drained from the banking system; later, when the Federal Re­serve purchase is implemented, the flow of reserves is reversed.

Matched sale-purchase transactions are typically arranged in Treasury bills. The Federal Reserve selects a bill in which it has a substantial holding and invites dealers to state an interest rate at which they are willing to purchase the bills for same-day delivery and to sell them back for delivery on a subsequent day. It then ac­cepts the most advantageous (lowest rate) bids to the point that sufficient reserves are withdrawn.

Federal Reserve System temporary transactions

Volume in billions of dollars

	1^st year	2^nd year	3^rd year	4^th year
	Num.	Vol.	Num.	Vol.	Num.	Vol.	Num.	Vol.
Repurchase agreements		189.9		508.7		533.3		627.6
Matched sale-purchase transactions		48.3		75.3		28.6		10.9

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