US market interest rates

With the increasingly international world in which we live, more and more institutions invest in the USA and indeed around the world.

With the US market there are two key interest rates that people need to understand and look out for. These are respectively the fed funds rate and the discount rate.

The Federal Funds Rate: Banks of course hold deposits with the Fed to settle transactions that take place amongst the various banks. When the deposits are too high the surplus gets lent out overnight to other system members - and it is that gives rise to the Feds fund rate.

This rate is important as it basically sets the playing field for the money market rates, and the Fed manipulates it accordingly.

Tne other rate is the Discount Rate. This is simply a reference to the rate at which the Fed is prepared at any given time to lend money to the banks. If the discount rate changes then it seen as an early indicator that the Feds funds rate is also about to change.

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