Question

The federal funds rate is the interest rate that .

a) the fed charges banks that borrow from it banks charge
b) the fed for using its reserves banks charge
c) each other for lending reserves on an overnight basis
d) the fed pays on bank reserves

Answer 1

The federal funds rate is the interest rate that one bank charges another bank for borrowing funds overnight. It is a key tool used by the Federal Reserve to influence monetary policy and the overall economy. Option (C) is correct.

Step-by-step explanation:

The federal funds rate is the interest rate that one bank charges another bank for borrowing funds overnight. It is a key tool used by the Federal Reserve to influence monetary policy and the overall economy. Banks use the federal funds rate as a benchmark for setting their interest rates on loans to consumers and businesses.

The Federal Reserve kept interest rates unchanged after today's policy meeting. The decision, which was widely expected, keeps the target range for the federal funds rate at 5.25-5.50%.

The interest rate on the overnight borrowing of reserves is called the federal funds rate or simply the "funds rate." It adjusts to balance the supply of and demand for reserves.

The term federal funds rate refers to the target interest rate range set by the Federal Open Market Committee (FOMC). This target is the rate at which commercial banks borrow and lend their excess reserves to each other overnight.