Fedral Funds Rates

All depository institutions in the United States are required by law to hold reserves based on a percentage of their transaction deposits. These reserves consist of cash in their vaults and balances in accounts at Federal Reserve Banks. Some financial institutions use their accounts at Reserve Banks not only to satisfy their reserve requirements but also to clear financial transactions, these institutions usually try to maintain a cushion of funds to protect themselves against unexpectedly …

…attractive interest rate. This paper shows that the individual loan pricing decisions are important, even when the loan lasts only overnight and is to another financial institution. There are many factors to the determination of the federal funds rate and many parts of the federal fund market system. This is a widely used technique to maintain the needed deposits in the Federal Reserve and is necessary to maintain the health of our economy. ------------------------------------------------------------------------ **Bibliography**