SIE (Securities Industry Essentials) Practice Exam

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The fed funds rate is the interest rate used for:

  1. Long-term government bonds

  2. Short-term, often overnight, loans between commercial banks

  3. Fixed-rate mortgages

  4. Savings accounts in federal banks

The correct answer is: Short-term, often overnight, loans between commercial banks

The correct answer is B. The fed funds rate is the interest rate that commercial banks charge each other for overnight loans. This rate is set by the Federal Reserve and is used as a tool to manage the money supply in the economy. Option A is incorrect because long-term government bonds have their own interest rates that are influenced by market forces. Option C is incorrect because fixed-rate mortgages are influenced by long-term interest rates, such as the 10-year treasury rate. Option D is incorrect because savings accounts in federal banks also have their own interest rates that are influenced by market forces.

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