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Strategies & Market Trends : Currencies and the Global Capital Markets

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To: N who wrote (1182)	1/26/1999 2:29:00 PM
From: Henry Volquardsen	Read Replies (4) of 3536

Nancy, The repo market is different from the Fed funds market but is connected in several ways. Fed Funds are the funds that banks have on deposit at the Federal Reserve. Originally this was only the money that the banks had at the Fed to satisfy reserve requirements. To the extent that some banks would have excess reserves while others would need reserves a market developed that allowed banks to lend to each other. The Federal Reserve participates in that they can lend funds to this market, that is where discount window borrowings go. It is also the banks quickest source of cash and the highest credit rating on any loan(deposit) they can make so the banks use it as their readiest source of cash. The Fed then tries to influence the market by either injecting or withdrawing liquidity into this market. Their readiest tool for this is repo on government bonds as described in a previous post. So Fed Funds is actually the market and repos is a typoe of transaction. Volumes in both are huge. FWIW repo is not exclusive to government bonds. Repo occurs in almost all securities markets. Henry

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