Federal Funds Case Study
Q5
Federal funds borrow money from a bank to another bank. The interest rate is the Fed funds rate. This rate is not set by anyone directly, but is determined by the market. Due to changes in supply and demand conditions, often change rate. Fed by adjusting the money supply to influence the federal funds rate.
Q6
The Fed funds market let depository institutions reach the needs of short-term liquidity to other financial institutions. When they need short-term funds from the Fed funds market, it borrowed funds to make it up.
Q7
The loan interest rate is called the discount rate set by the fed. Banks tend to pass the discount window rather than the Fed funds market, since the Fed may monitor bank lending. The Fed's discount window to meet those …show more content…
It should push the checking accounts and money market deposit accounts. Banks don't know the exact length of time from which these accounts can be used, and it should be able to make other funds (if inexperienced) in the federal funds market. At the same time, the bank should bear the cost fund, because the current deposit and the money market deposit account payment ratio, thereby reducing interest rates.
b. Banks should not focus on real estate loans, because the loan portfolio will be affected by the fall in the real estate market. Real estate market performance is good, but due to the decline in real estate demand, the performance of real estate loans may be poor. The bank may consider the use of the funds to invest in local business loans. It can also invest in US Treasury bonds, but it must be realized that the return of treasury bonds and other low-risk securities will be low returns.
c. Because the real estate lending rate is relatively high, the potential rate of return may be smaller. However, once the loan portfolio is restructured to reduce the amount of real estate loans, the risk of uncertainty around returns may be reduced. The cost of capital should be on the CD check account or pay more attention to is not
Federal funds borrow money from a bank to another bank. The interest rate is the Fed funds rate. This rate is not set by anyone directly, but is determined by the market. Due to changes in supply and demand conditions, often change rate. Fed by adjusting the money supply to influence the federal funds rate.
Q6
The Fed funds market let depository institutions reach the needs of short-term liquidity to other financial institutions. When they need short-term funds from the Fed funds market, it borrowed funds to make it up.
Q7
The loan interest rate is called the discount rate set by the fed. Banks tend to pass the discount window rather than the Fed funds market, since the Fed may monitor bank lending. The Fed's discount window to meet those …show more content…
It should push the checking accounts and money market deposit accounts. Banks don't know the exact length of time from which these accounts can be used, and it should be able to make other funds (if inexperienced) in the federal funds market. At the same time, the bank should bear the cost fund, because the current deposit and the money market deposit account payment ratio, thereby reducing interest rates.
b. Banks should not focus on real estate loans, because the loan portfolio will be affected by the fall in the real estate market. Real estate market performance is good, but due to the decline in real estate demand, the performance of real estate loans may be poor. The bank may consider the use of the funds to invest in local business loans. It can also invest in US Treasury bonds, but it must be realized that the return of treasury bonds and other low-risk securities will be low returns.
c. Because the real estate lending rate is relatively high, the potential rate of return may be smaller. However, once the loan portfolio is restructured to reduce the amount of real estate loans, the risk of uncertainty around returns may be reduced. The cost of capital should be on the CD check account or pay more attention to is not