Question

The federal funds rate is the interest rate at which: Group of answer choices banks borrow...

The federal funds rate is the interest rate at which:

Group of answer choices

banks borrow funds directly from the Federal Reserve.

banks borrow from other banks with excess reserves.

the influential companies borrow from banks.

households' savings are invested in the Federal Reserve.

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Answer #1

Answer : Option b) banks borrow from other banks with excess reserves

Federal funds rate of interest is set by the FOMC, which determines the rate at which banks borrow from other banks with excess reserves on an overnight basis. Banks can fall short on liquidity time to time and thus to ensure smooth functioning of their daily activity the requirement comes of borrowing from other banks and the rate of interest at which they get to borrow is fixed as the federal funds rate.

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