The federal funds rate is lower than the repo rate because the lending of federal funds is done on an unsecured basis.

Question

Quizplus · Accepted Answer

The federal funds rate and the repo rate are determined by different factors, and the federal funds rate is not inherently lower than the repo rate because of the security of the loans. The federal funds rate is the interest rate at which depository institutions lend reserve balances to other depository institutions overnight, while the repo rate is the rate at which repurchase agreements (secured loans) are transacted. The security of the loan does not directly dictate which rate is higher or lower; market conditions, central bank policies, and demand for liquidity play significant roles.

The Federal Funds Rate Is Lower Than the Repo Rate