Question

g: Describe the process of "borrowing at the Federal Reserve." What rate is charged, and who sets it? Why do banks commonly borrow in the federal funds market rather than through the Federal Reserve? © Cengage

Answer 1

Answer: See explanation

Explanation:

Borrowing from the Federal reserve is typically used by banks so that they can go above the minimum reserve. This is done typically using the discount window.

The rate that is charged when the banks borrow from the Federal reserve is typically set by the Federal reserve. The reason why banks commonly borrow in the federal funds market rather than through the Federal Reserve is due to the fact that a lower rate is charged when one borrows from the federal funds market rather than borrowing from the Federal reserve.