Role of the Federal Funds Rate

4 important questions on Role of the Federal Funds Rate

What does the Federal Funds Rate (FFR) represent?

The rate that commercial banks charge for short-term loans.

Why do banks borrow from each other regarding the Federal Funds Rate (FFR)?

Banks borrow to cover shortages of reserves at day's end.

Why is the federal funds rate important beyond banks?

It influences other short-term rates, impacting the entire financial system. Key tool for the Fed.
  • Higher grades + faster learning
  • Never study anything twice
  • 100% sure, 100% understanding
Discover Study Smart

What happens to other short-term rates when the federal funds rate changes?

Other short-term rates typically move in the same direction as the federal funds rate.

The question on the page originate from the summary of the following study material:

  • A unique study and practice tool
  • Never study anything twice again
  • Get the grades you hope for
  • 100% sure, 100% understanding
Remember faster, study better. Scientifically proven.
Trustpilot Logo