The market in which banks with excess reserves lend them to banks that desire additional reserves is known as the ________ market.
A)capital reserves
B)excess reserves
C)federal funds
D)excess funds

Question

Quizplus · Accepted Answer

The federal funds market is the market where banks with excess reserves lend them to banks that need additional reserves for meeting their reserve requirements. These transactions usually happen overnight and are facilitated by the Federal Reserve to help banks manage their liquidity needs. Option A, capital reserves, refers to a bank's own funds that act as a cushion against losses. Option B, excess reserves, are reserves held by banks that are over and above the required reserve ratio mandated by the Federal Reserve. Option D, excess funds, is not a commonly used term in banking and is not related to interbank lending.

The Market in Which Banks with Excess Reserves Lend Them