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Strategies & Market Trends : Tech Stock Options
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To: Pascal A. Mons who wrote (2404)6/7/1996 3:30:00 PM
From: Kevin   of 58727
 
Federal Funds rate isn't a "set" rate. It's typically floats around the
discount rate, but not necessaroly. If no banks have excess reserves
to lend to other banks, the rate goes sky high. Fed funds is strictly
a rate between banks that means NOTHING to the public and outsiders.
Text book example: June 29 1994---discount rate at 3.5% Fed Funds at
4.25%. The next day, all funds dried up between banks = huge demand
for money, so Fed Funds went up to 10% that day. Yes that's right 10%!
And there was no rate increase in sight. Fed Funds doesn't mean crap
to anyone, except banks borrowing cash.
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