Which of the following observations concerning the federal funds rate is NOT true?
A)The cost of fed funds for the purchasing institution is the federal funds rate.
B)The federal funds rate is set by DIs that trade in the fed funds market.
C)The federal funds rate can vary considerably within the day.
D)The federal funds rate can vary considerably across days.
E)Rate variability has increased since the introduction of lagged reserve accounting.

Question

Quizplus · Accepted Answer

The federal funds rate's variability has not necessarily increased since the introduction of lagged reserve accounting; instead, changes in monetary policy tools and market conditions over time influence rate variability. Lagged reserve accounting was a method used by the Federal Reserve to calculate the amount of reserves a bank needed to hold, based on the bank's deposits in a previous period. The variability in the federal funds rate is more directly influenced by factors such as economic conditions, central bank policy decisions, and liquidity in the banking system rather than the accounting method used for reserve calculations.

Which of the Following Observations Concerning the Federal Funds Rate