Final answer:
The correct statement is 'a. It is not influenced by the supply and demand for funds in the federal funds market.' The federal funds rate is influenced by the supply and demand for funds in the federal funds market, and the Federal Reserve adjusts the amount of funds in depository institutions to influence the federal funds rate.
Step-by-step explanation:
The correct answer is a. It is not influenced by the supply and demand for funds in the federal funds market.
The federal funds rate is actually influenced by the supply and demand for funds in the federal funds market. The Federal Reserve adjusts the amount of funds in depository institutions to influence the federal funds rate. It is the rate charged by financial institutions on loans they extend to each other. Many market participants view changes in the federal funds rate as an indicator of potential changes in other money market rates.
Example: When the Federal Reserve wants to lower the federal funds rate, it will buy government securities from banks. This increases the reserves of the banks, leading to an increase in the supply of funds in the federal funds market. As a result, banks can lend out more funds to each other at lower interest rates, causing the federal funds rate to decrease.