Which statement is true about the Fed funds rate?

The Federal funds rate is the interest rate at which depository institutions, such as banks and credit unions, lend reserve balances to other depository institutions overnight on an uncollateralized basis. This means that when one bank has excess reserves that it does not need to hold for withdrawal demands, it can lend those reserves to another bank that might be short of reserves. This lending occurs in the interbank market and is a critical aspect of the overall banking and financial system.

The rate is influenced by the Federal Reserve's monetary policy and can affect other interest rates across the economy, such as those for loans, mortgages, and savings. It serves as a benchmark for various short-term interest rates and is a key tool for influencing economic activity in the United States. The other options either misrepresent where the rate is applied or inaccurately describe its relationship with the market or the Federal Reserve's functions.