What is the federal funds rate?

Question

process by which banks record whose account gives up money and whose account receives money when a customer writes a check

an individual’s or company’s total assets minus liabilities

interest rate banks charge each other for loans

rate the Federal Reserve charges for loans to commercial banks

Answer 1

The federal funds rate is the interest rate at which banks lend reserves to each other overnight. This rate is influenced by the Federal Reserve's monetary policy and can impact broader economic conditions, such as consumer borrowing costs and spending.

To clarify the terms you've provided:

1. Process by which banks record whose account gives up money and whose account receives money when a customer writes a check: This describes the clearing process of checks.

2. An individual’s or company’s total assets minus liabilities: This defines net worth or equity.

3. Interest rate banks charge each other for loans: This is essentially the definition of the federal funds rate.

4. Rate the Federal Reserve charges for loans to commercial banks: This refers to the discount rate.

In summary, the federal funds rate specifically refers to the interest rate that banks charge each other for overnight loans and is key to monetary policy.