The money market rate observed most closely by the Open Market Account Manager is the
A) Treasury bill rate.
B) commercial paper rate.
C) discount rate.
D) federal funds rate.

Question

Quizplus · Accepted Answer

The Open Market Account Manager closely observes the federal funds rate because it is the rate at which banks lend and borrow from each other overnight in order to meet reserve requirements set by the Federal Reserve. It is a key indicator of overall market liquidity and the Federal Reserve can use targeting this rate as a tool in implementing monetary policy. While the Treasury bill and commercial paper rates are also important indicators of market conditions, they are not as directly tied to the Federal Reserve's actions as the federal funds rate. The discount rate is the interest rate at which banks can borrow directly from the Federal Reserve and is also closely monitored, but it is less reflective of broader market conditions.

The Money Market Rate Observed Most Closely by the Open