Question

20) Federal funds are A) usually overnight investments. B) borrowed by banks that have a deficit of reserves. C) lent by banks that have an excess of reserves. D) all of the above. E) only A and B of the above.

Answer 1

Answer: D all of the above

The correct answer to the question is D)
all of the above.
. a 434
X
Federal funds are funds that banks and financial institutions use to meet their reserve requirements. These funds are usually overnight investments, which means that banks borrow or lend them for a short period of time, usually overnight.
Banks that have a deficit of reserves borrow federal funds to meet their reserve requirements. This allows them to maintain a minimum level of reserves as mandated by regulatory authorities. On the other hand, banks that have an excess of reserves can lend federal funds to other banks that need to borrow to meet their reserve requirements. This helps to ensure that all banks are able to comply with reserve regulations.
Therefore, federal funds can be both borrowed by banks with a deficit of reserves option B) and lent by banks with an excess of reserves (option C).
Additionally, federal funds are usually overnight investments (option A).
To summarize, federal funds can be borrowed by banks with a deficit of reserves, lent by banks with an excess of reserves, and are usually overnight investments. Hence, the correct answer is
D) all of the above.