FI 413 Lecture Notes - Lecture 2: Repurchase Agreement, Federal Funds Rate, Freddie Mac
Document Summary
Readings: pages 9 21 in the course pack http://www. wsj. com/articles/two-california-groups-test-washingtons-tolerance-for-new-banks- Made it harder to become a back and financial crisis didn"t help. The form was 2000 pages- most small banks failed in this financial crisis. Lower interest rates now-too low could create a negative interest rate because the cost of deposit is higher. Federal funds sold and reverse repurchase agreements https://apps. newyorkfed. org/markets/autorates/fed%20funds#chart12 http://www. dtcc. com/charts/dtcc-gcf-repo-index http://online. wsj. com/mdc/public/page/2_3020-moneyrate. html. Federal fund transactions- short-term (mostly overnight) unsecured loans between banks. Banks with excess cash reserves often lend or sell fed funds, while banks with deficient cash reserves often borrow or purchase fed funds. Generally safe but are not secured by collateral. Frb influences the federal fund rate in conducting monetary policy. To stimulate the economy and reduce interest rates the will buy treasury securities from banks. To reduce inflation and increase market interest rates - they will sell treasury securities to banks and this leaves them short of cash and will want to borrow from other banks.
