What is FEDERAL FUNDS?

In the United States, unsecured LOANS available to member BANKS from excess balances held at one of the 12 FEDERAL RESERVE BANKS. The process of borrowing Federal Funds is represented as a purchase of funds, while lending is the sale of funds. The majority of Federal Funds transactions mature the business day after they are contacted, though term transactions for from one week to six months can be arranged. Federal Funds are available immediately (i.e., they are considered GOOD MONEY), an advantage over interbank CLEARINGHOUSE funds, which are generally only accessible one to two days after contracting.

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