Question

Can you describe bank Fed Funds Bought and bank Fed Funds Sold? These are actual balance sheet accounts on bank financial statements. Terrible name for balance sheet accounts!!

Answer 1

Bank Fed Funds bought

The Federal bank which is known as the indepenent entity as a central bank in the United States and when the Federal bank is in the shortage of the reserve funds then the federal bank borrow funds from the banks on the overnight basis and the banks who lends money to the Federal banks charge specific interest rates. This is necessary because the bank needs to maintain supply of notes in the market, in order to do so they should have excess funds so federal bank borrow money form the banks for the nation's stability.

Bank Fed Funds Sold

When the Federal bank is in excess of the funds and due to the excess funds the federal bank lends money in the market and banks borrow funds from the federal bank on the nominal interest rates, this will increase the bank reserve but on the other hand the banks will also increase their liability. When bank lent funds to the banks they purchased assets and these transactions lowered their reserve too but then they borrow funds from the selling bank.