Banking 14 - Fed Funds Rate

Question 1

target rate = ?

Answer 1

the rate at which the fed wants banks to lend funds to each other on a very short term basis

Question 2

what are federal funds?

Answer 2

funds held in a central bank’s reserve

Question 3

what does the federal funds market enable?

Answer 3

The federal funds (or fed funds) market enables depository institutions to directly trade central bank reserves in the U.S

In this market, depository institutions and other financial entities—mainly government-sponsored enterprises (GSEs)—borrow and lend funds