Question

The Fed funds rate is the rate that

A. banks charge for loans to corporate customers.
B. banks charge to lend foreign exchange to customers.
C. the Federal Reserve charges on emergency loans to commercial banks.
D. banks charge each other on loans of excess reserves.
E. banks charge securities dealers to finance their inventory.

Answer 1

Option (D) is correct.

Step-by-step explanation:

The federal funds rate refers to a interest rate that is charged from one financial institution by the other financial institution for lending funds which are kept with the federal reserve in the form of excess reserves. It plays a very important in making an impact on the financial and economic conditions of a nation. Fed rate is normally associated with the most creditworthy financial institutions.