Why the actual federal funds rate could not drop

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Unlike commercial banks, not all financial institutions that can borrow and lend in the federal funds market are eligible to receive interest on deposits with the Federal Reserve.

If only banks, which do receive interest on reserve deposits, could borrow and lend in the federal funds market, explain why the actual federal funds rate could not drop below the interest rate the Fed pays on reserve deposits.

Reference no: EM131303023

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