Question

The "Effective" Federal Funds Rate is composed of rates offered by:

a. selected commercial banks across the United States.
b. selected thrift institutions across the United States.
c. the designated primary U.S. Government securities dealers.
d. the U.S. Treasury.

Answer 1

Letter A is the correct answer.

Federal Funds are overnight borrowing that happens from commercial banks to commercial banks to keep their bank reserves at the Federal Reserve. The "effective" Federal Funds rate is composed of rates offered by selected commercial banks across the United States of America. Neither thrift institutions nor primary dealers can loan Federal Funds since these firms are not commercial banks but broker-dealers.