Borrowing in the federal funds market is an alternative to borrowing in the repo market.

Question

Quizplus · Accepted Answer

The federal funds market and the repo market are both sources of short-term borrowing for financial institutions, but they operate differently. In the federal funds market, banks borrow and lend reserves (i.e. cash held at the Federal Reserve) to each other overnight. In the repo market, banks and other financial institutions can borrow and lend cash or securities using a repurchase (repo) agreement. While both markets serve similar purposes, they are distinct and offer different benefits and risks for borrowers and lenders.

Borrowing in the Federal Funds Market Is an Alternative to Borrowing