<P> The federal funds rate target is decided by the governors at Federal Open Market Committee (FOMC) meetings . The FOMC members will either increase, decrease, or leave the rate unchanged depending on the meeting's agenda and the economic conditions of the U.S. It is possible to infer the market expectations of the FOMC decisions at future meetings from the Chicago Board of Trade (CBOT) Fed Funds futures contracts, and these probabilities are widely reported in the financial media . </P> <P> Interbank borrowing is essentially a way for banks to quickly raise money . For example, a bank may want to finance a major industrial effort but may not have the time to wait for deposits or interest (on loan payments) to come in . In such cases the bank will quickly raise this amount from other banks at an interest rate equal to or higher than the Federal funds rate . </P> <P> Raising the federal funds rate will dissuade banks from taking out such inter-bank loans, which in turn will make cash that much harder to procure . Conversely, dropping the interest rates will encourage banks to borrow money and therefore invest more freely . This interest rate is used as a regulatory tool to control how freely the U.S. economy operates . </P> <P> By setting a higher discount rate the Federal Bank discourages banks from requisitioning funds from the Federal Bank, yet positions itself as a lender of last resort . </P>

If the reserve requirement ratio = 10 & the federal reserve board decreases