Explain whether you believe banks participation in the fed f

Explain whether you believe banks\' participation in the fed funds market is beneficial or not. Are there better alternatives?

Solution

I believe banks participating in fed funds market is beneficial. Fed fund market is a market where all banks provide short term liquidity to each others. This is done so as to maintain reserve ratios set by federal bank. Thus if a bank shortfall reserves then he borrows from other banks and repays them in a short period of time. It is beneficial because sometimes there are delays in payments to be received to banks or other case .

This system also keeps required capital in range which is set by federal bank. This ensures safety of economy.

I don\'t believe any other better alternative exists.