Which of the following statements is true of the federal funds market?
A) No banks are refused loans in the federal funds market.
B) In the federal funds market, banks with a shortage of reserves borrow funds, while banks with an excess of reserves lend them out.
C) The interbank lending system works more efficiently in periods of financial panic than in periods of financial stability.
D) Although the federal funds market aims to provide liquidity to needy banks, it is not very popular as overnight loans are logistically inefficient for large banks.

Question

Quizplus · Accepted Answer

In the federal funds market, banks with a shortage of reserves borrow funds, while banks with an excess of reserves lend them out. This is the main purpose of the federal funds market, to provide liquidity to banks in need. The other statements are false. Banks can be refused loans in the federal funds market, the interbank lending system works more efficiently in periods of financial stability, and overnight loans are actually popular and commonly used in the market.

Which of the Following Statements Is True of the Federal