One of the items listed below is not a component of Federal funds. Which one is not a component of Federal funds?
A) The reserve balance each bank must keep at the Federal Reserve bank in its region of the U.S
B) Deposits held by banks with other large correspondent banks
C) Deposits that savings and loans, credit unions and savings banks hold with commercial banks
D) Vault cash held by an individual bank which counts in satisfying a bank's legal reserve requirements
E) All of the above are components of Federal funds

Question

Quizplus · Accepted Answer

Federal funds consist of reserve balances that banks maintain at Federal Reserve Banks and the deposits that banks hold with each other, not the vault cash held by individual banks. Vault cash does satisfy a bank's legal reserve requirements but is not considered a component of Federal funds, which are primarily concerned with interbank balances and the reserves maintained at the Federal Reserve.

One of the Items Listed Below Is Not a Component