Question

The federal funds rate is the

a. percentage of face value that the Federal Reserve is willing to pay for Treasury Securities.

b. percentage of deposits that banks must hold as reserves.

c. interest rate at which the Federal Reserve makes short-term loans to banks.

d. interest rate at which banks lend reserves to each other overnight.

I think the answer is D but I need to double check.

Answer 1

Answer is "D", Federal fund rates are the rates at which the bank lend each other overnight in the market, as the reserves fall the federal fund rate fall and as the reserves increase the federal fund rate increases.

Answer 2

The correct response is "D". Federal funds rates refer to the rates at which banks lend to each other overnight in the market. When reserves decrease, the federal funds rate also decreases, and conversely, when reserves increase, the federal funds rate increases.The law requires that bank must have a minimum reserve level in proportion to the deposit  this reserve requirement is held at federal reserve Bank