The fact that there is a market for federal funds enables banks to:

Question

Quizplus · Accepted Answer

The existence of a federal funds market allows banks to borrow or lend funds from each other to meet their reserve requirements. This means that banks can hold a lower level of excess reserves than they would otherwise hold, since they know they can easily borrow the needed funds from other banks in the federal funds market. This reduces the cost of holding excess reserves, which allows banks to potentially lend more money without having to keep as much cash on hand.

The Fact That There Is a Market for Federal Funds