The Federal Funds Rate is ________.
A) the rate charged on overnight loans of deposits (held by the Federal Reserve) between banks
B) the rate charged on corporate bank loans to healthy "prime" borrowers
C) the rate charged on U.S. Treasury bonds by the Federal Reserve
D) the rate charged on U.S securities with maturities of less than a year
E) none of the above

Question

Quizplus · Accepted Answer

The Federal Funds Rate is the interest rate that banks charge each other for overnight loans of deposits held by the Federal Reserve. This rate is set by the Federal Open Market Committee (FOMC) and is considered one of the most important tools in monetary policy. Option B is referring to the prime rate, which is not directly set by the Federal Reserve. Option C is referring to the interest rate set by the Federal Reserve for bonds it owns, which is not the Federal Funds Rate. Option D is referring to the discount rate, which is another tool used by the Federal Reserve, but it is not the same as the Federal Funds Rate.

The Federal Funds Rate Is ________