MCQ Detailed View

The federal funds market is the most flexible and liquid source of funding for savings banks and other depository institutions. In this market, banks lend and borrow reserves from each other, usually on an overnight basis, to meet liquidity requirements and reserve obligations. Because transactions are short-term and unsecured, this market provides immediate access to funds, making it highly liquid. It also plays a critical role in the implementation of monetary policy, since the federal funds rate influences overall interest rates in the economy.