## Finance Experiment and Research *Continued*

Ask questions about projects relating to: computer science or pure mathematics (such as probability, statistics, geometry, etc...).
leon.hu,

you should use the federal funds rates because you are going to do the general population...the discount rate will give you a biast result.
Scronjsn11
Former Expert

Posts: 22
Joined: Thu May 11, 2006 9:54 pm

### Different Fed Fund Rates

There are two rates set by the Federal Reserve: the fed funds rate and the discount rate. For definitions see below.

The fed funds rate is more important because all short-term rates are derived from the fed funds rate. If the Federal Reserve cuts the fed funds rate, all short-term rates are similarly cut, which has a major impact on the economy.

The discount rate, on the surface, does not have such a major impact, since few loans are done at the discount rate, see the definition of discount rate below. The Federal Reserve recently (8/17/2007) cut just the discount rate, and the impact being that it would soon cut the fed funds rate (perhaps on 9/18/2007).

Few organizations can move the market like the Federal Reserve. As an investor, it's important to understand exactly what the Fed does and how it influences the economy.

Understand the various factors that influence them so you can learn to anticipate their movements for profit. (Trying To Predict Interest Rates - http://www.investopedia.com/articles/03/122203.asp)

Learn about the tools the Fed uses to influence interest rates and general economic conditions, see Formulating Monetary Policy - http://www.investopedia.com/articles/04/050504.asp

Definitions:

The fed funds rate is interest rate at which a depository institution lends immediately available funds (balances at the Federal Reserve) to another depository institution overnight. In fact, the Federal Reserve sets a target for this rate, but not the actual rate itself (because it is determined by the open market).

The discount rate is the rate at which the Fed lends directly to banks.
Cheers!

Dave
davidkallman
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Posts: 675
Joined: Thu Feb 03, 2005 3:38 pm

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