Federal funds




Main article: Federal Reserve System

This article is about funds maintained by the U.S. Federal Reserve. For the funds provided by the U.S. government in terms of aid and assistance, see Administration of federal assistance in the United States.

In the United States, federal funds are overnight borrowings between banks and other entities to maintain their bank reserves at the Federal Reserve. Banks keep reserves at Federal Reserve Banks to meet their reserve requirements and to clear financial transactions. Transactions in the federal funds market enable depository institutions with reserve balances in excess of reserve requirements to lend reserves to institutions with reserve deficiencies. These loans are usually made for one day only, that is, "overnight". The interest rate at which these deals are done is called the federal funds rate. Federal funds are not collateralized; like eurodollars, they are an unsecured interbank loan.[1]


Federal funds transactions by regulated financial institutions neither increase nor decrease total bank reserves. Instead, they redistribute reserves. Before 2008, this meant that otherwise idle funds could yield a return. (Since 2008, the Fed has paid interest on reserves, including excess reserves.) Banks may borrow these funds to avoid an overdraft (that is, the balance going below reserve requirement) of their reserve account, or in order to meet the reserves required to back their deposits. Federal funds are definitive money, meaning that they are available for immediate spending, while checks and many other forms of money must be cleared by banks and typically take several days before becoming available for spending.


Participants in the federal funds market include commercial banks, savings and loan associations, government-sponsored enterprises, branches of foreign banks in the United States, federal agencies, and securities firms. Many relatively small institutions that accumulate reserves in excess of their requirements lend reserves overnight to money center and large regional banks, as well as to foreign banks operating in the United States. Federal agencies also lend idle funds in the federal funds market.



See also



  • Arbitrage

  • Discount rate

  • Federal funds probability

  • Opportunity cost

  • LIBOR

  • Repurchase agreement



References





  1. ^ Discount Window vs. Fed Funds




External links



  • Federal Funds - Fedpoints - Federal Reserve Bank of New York

  • Instruments of the Money Market: See Chapter 2 - Federal Funds









-

Popular posts from this blog

Bressuire

Image
Subprefecture and commune in Nouvelle-Aquitaine, France Bressuire Subprefecture and commune Chateau de Bressuire and the Eglise Notre-Dame Coat of arms Location of Bressuire Bressuire Show map of France Bressuire Show map of Nouvelle-Aquitaine Coordinates: 46°50′27″N 0°29′14″W  /  46.8408°N 0.4872°W  / 46.8408; -0.4872 Coordinates: 46°50′27″N 0°29′14″W  /  46.8408°N 0.4872°W  / 46.8408; -0.4872 Country France Region Nouvelle-Aquitaine Department Deux-Sèvres Arrondissement Bressuire Canton Bressuire Government  • Mayor .mw-parser-output .nobold{font-weight:normal} (2014–20) Jean Michel Bernier Area 1 180.59 km 2 (69.73 sq mi) Population (2014) 2 19,300  • Density 110/km 2 (280/sq mi) Time zone UTC+01:00 (CET)  • Summer (DST) UTC+02:00 (CEST) INSEE/Postal code 79049 /79300 Elevation 98–236 m (322–774 ft) (avg. 173 m or 568 ft) 1 French Land Register data, which exclude...
Read more

Vorschmack

Image
Vorschmack Ukrainian Jewish-style vorschmack served on rye bread Course Hors d'oeuvre Region or state Eastern Europe Associated national cuisine Ashkenazi Jewish, Finnish, German, Ukrainian, Polish, Russian Main ingredients Ground meat and/or fish Cookbook: Vorschmack   Media: Vorschmack Vorschmack or forshmak (Yiddish: פֿאָרשמאַק ‎, from archaic German Vorschmack , "foretaste" [1] or "appetizer" [2] ) is an originally East European dish made of salty minced fish or meat. Different variants of this dish are especially common in Ashkenazi Jewish and Finnish cuisine. Some varieties are also known in Russian and Polish cuisine. Contents 1 In Jewish cuisine 2 In Russian cuisine 3 In Polish cuisine 4 In Finnish cuisine 5 See also 6 References In Jewish cuisine According to Gil Marks, the German name points to the possible Germanic origin of this dish. [1] William Pokhlyobkin descr...
Read more

Quarantine

Image
For other uses, see Quarantine (disambiguation). Signal flag "Lima" called the "Yellow Jack" which when flown in harbor means ship is under quarantine. A simple yellow flag (also called the "Yellow Jack") had historically been used to signal quarantine (it stands for Q among signal flags), but now indicates the opposite, as a signal of a ship free of disease that requests boarding and inspection. A quarantine is used to separate and restrict the movement of people; it is 'a restraint upon the activities or communication of persons or the transport of goods designed to prevent the spread of disease or pests', for a certain period of time. [1] This is often used in connection to disease and illness, such as those who may possibly have been exposed to a communicable disease. [2] The term is often erroneously used to mean medical isolation, which is "to separate ill persons who have a communicable disease from those who are healthy...
Read more