Federal Funds
 |
Definition of 'Federal Funds'Excess reserves that commercial banks deposit at regional Federal Reserve banks. Federal funds can then be lent to other commercial banks with insufficient reserves. These loans are made at a relatively low interest rate, called the federal funds rate or overnight rate, and they typically have an extremely short duration: overnight. Federal funds help commercial banks meet their daily reserve requirements. Banks are required to maintain a certain level of reserves based on the amount of customer deposits they are responsible for. |
 |
Investopedia explains 'Federal Funds'When federal funds are freely available for borrowing, credit is easy to obtain and the credit market is considered healthy. When federal funds are difficult to obtain, credit becomes tight. If credit is too freely available, the Federal Reserve may buy back some of the government bonds it has issued to decrease the money supply and try to prevent inflation. The federal funds rate is closely related to short-term interest rates in the broader market. |
Related Definitions
Articles Of Interest
-
Basics Of Federal Bond Issues
Treasuries are considered the safest investments, but they should still be analyzed when issued. -
Interest Rates And Your Bond Investments
By understanding the factors that influence interest rates, you can learn to anticipate their movement and profit from it. -
What does a cut in interest rates mean for the stock market?
When the next Federal Reserve meeting is expected to bring interest rate cuts or increases, it is wise, as a stock investor, to be aware of the potential effects behind such decisions. Although ... -
The Federal Reserve
Few organizations can move the market like the Federal Reserve. As an investor, it's important to understand exactly what the Fed does and how it influences the economy. -
Introduction To Treasury Inflation-Protected Securities (TIPS)
If you want to protect your portfolio from inflation, all you need are a few TIPS. -
Introduction To Coincident And Lagging Economic Indicators
Investors can learn a lot, or very little, from these indicators once they know how to use them. -
How Risk Free Is The Risk-Free Rate Of Return?
This rate is rarely questioned - unless the economy falls into disarray. -
Nobel Winners Are Economic Prizes
Before you try to profit from their theories, you should learn about the creators themselves. -
Breaking Down The Balance Of Trade
The balance of trade is a key indicator of a nation’s health. Investors and market professionals appear more concerned with trade deficits than trade surpluses, since chronic deficits may be ... -
Open Market Operations Explained
The term “open market operations” refers to a monetary policy tool in which central banks buy and sell bonds to regulate the money supply in the economy. The United States employs open market ...
Free Annual Reports