ECONOMICS
FEDERAL RESERVE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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banks borrow from the Fed.
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bank customers borrow from their banks
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banks borrow from each other.
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the federal government borrows from the Fed.
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Detailed explanation-1: -The financial market in which interbank lending occurs in the United States is called the federal funds market, and the federal funds rate is the interest rate on the overnight borrowing of reserves in that market.
Detailed explanation-2: -Government-sponsored enterprises such as the Federal Home Loan Banks loan funds, and foreign commercial banks borrow.
Detailed explanation-3: -The Federal funds market refers to the borrowing and lending of a special kind of money-deposit balances in the Federal Reserve Banks-at a specified rate of interest. Such transactions are com-monly referred to in the financial markets as purchases and sales of Federal funds.
Detailed explanation-4: -The federal funds market consists of domestic unsecured borrowings in U.S. dollars by depository institutions from other depository institutions and certain other entities, primarily government-sponsored enterprises.
Detailed explanation-5: -Banks can borrow from the Fed to meet reserve requirements. The rate charged to banks is the discount rate, which is usually higher than the rate that banks charge each other. Banks can borrow from each other to meet reserve requirements, which is charged at the federal funds rate.