Open-Market Rate
Barron's Banking Dictionary:
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Open Market Rates
Interest rates on various Money Market Instruments that have an active secondary market. Open market rates are influenced by a number of factors, including supply and demand, current interest rates, and also trading arbitrage by market participants.
For example, in the Federal Funds market, banks with excess reserves sell funds, usually on an overnight basis, to other banks needing cash to meet their Reserve Requirements. The Fed Funds rate is repriced with each transaction, and is highest during periods of Tight Money when the supply of Nonborrowed Reserves in the banking system is reduced by Federal Reserve monetary policy.
Other examples of open market rates are the rates banks pay when they buy Eurodollar deposits from a non-U.S. Bank or purchase negotiable certificates of deposits and bankers' acceptances from banks willing to sell funds in the money market.
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Open-Market Rate
Investopedia Financial Dictionary:
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Open-Market Rate
Rate of interest that is paid on any debt security that trades in the open market. Open-market rates respond directly to changes in supply and demand. Interest rates for such debt instruments as commercial paper and banker's acceptances are open-market rates.
Investopedia Says:
Open-market rates differ from the discount rate and other official rates that are set by the Federal Reserve. These rates apply to any debt instrument that trades in the secondary market. Bank commercial-loan rates do not fall into this category, as they are largely determined by Fed policy.
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Barron's Banking Dictionary
Dictionary of Banking Terms. Copyright © 2006 by Barron's Educational Series, Inc. All rights reserved.
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