Federal funds market-federal funds rate and discount rate, Finance Basics

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What does reserve requirements and the discount rate?

What the Fed Does: Reserve needs and the Discount Rate

The federal funds market

Financial market which allows banks as fall short of the reserve requirement to borrow reserves – generally just overnight – through banks which hold excess reserves.

The federal funds rate

Interest rate which banks charge for lending overnight to other bank. Found out by supply and demand, but strongly influenced by the Federal Reserve’s actions

The discount rate

The rate of interest the Fed charges onto loans to banks. One percent point above the federal funds rate.


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