Challenge Your Exam Readiness With Our Free Series 65 License Practice Questions

The federal funds rate is the overnight lending rate banks charge each other for reserve balances. When the Fed reduces this rate, the cost of short-term borrowing declines, encouraging banks to lend more and businesses and consumers to take advantage of cheaper credit. This often spurs consumer borrowing (mortgages, car loans, credit) and business investment (capital projects, hiring). Option B is the opposite effect; lower rates usually reduce, not increase, unemployment. Option C is not automatic; while easing can reduce recession fears, inflation expectations might actually rise if markets think monetary policy is too loose. Option D is also unlikely—lower interest rates generally weaken the dollar as investors seek higher yields abroad. On the Series 65 exam, understanding how central bank actions influence credit conditions, asset pricing, and investor behavior is essential. Monetary policy is a leading driver of market cycles, and advisers are expected to connect rate shifts to suitability recommendations, such as bond duration positioning or equity sector tilts.