Term Fed Funds
Categories: Econ
Financial institutions, like banks, often borrow from each other overnight. Every day, they’re on the hook to make sure they have enough reserves on hand, in order to fulfill the required reserve minimums. (Banks are legally required to have a certain percentage of liquidity on hand compared to what’s being lent out, in the interest of consumer protection.) But sometimes overnight loans just doesn’t cut it. When a bank needs a loan for more than a day, they’ll probably head over to the Federal Reserve, or a big bank, for term fed funds.
Term federal funds are funds that financial institutions can borrow from the Fed (or another financial institution) for up to 90 days. The rate is usually pretty low, but not always. It depends on what the federal funds rate at the time is, which is the rate at which banks lend and borrow from each other. The FOMC, the Federal Open Market Committee, decides what the fed funds rate should be, with the potential for it to change 8x per year.
If the loan is interbank, rather than via the Fed, the contract has to be laid out a certain way, according to the Fed’s rules...the way Papa Fed would do it.
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Finance: What is Term To Maturity?12 Views
finance a la shmoop what is term to maturity alright people well it's kind
of a lifecycle of a bond like a bond is issued or sold it has an assay a 15 year [Bond timeline appears]
duration somebody's written that money for 15 years its term to maturity when
it first was issued was 15 years but if you bought that bond nine years into it
some you know maturation process when all the hairs growing in funny places [Hairs grow out of bond]
then at that point it would have six years current maturity well what goes on
between these years interest payments and then eventually at the very end the
issuer pays back the principal to the investor who bought the bond and [Money transfers from issuer to investor]
everyone goes away happy-ish well bonds carry gradations in short medium and
long term terms to maturity like short term generally is considered one to five [Different types of bond appear]
years mid term medium term and something like that is like five to a dozen years
and long term is like up to you know thirty or even a hundred years after
that dozen or so no hard lines here they're all dotted and yeah Disney [Man discussing bonds at DisneyLand]
actually sold a hundred year bonds at one point and they are of course the
happiest bonds on earth [Disney bonds appear]