Federal funds provide banks with an immediate infusion of reserves and are short-term funds transferred between financial institutions. They usually last for a period of one day and actually have nothing to do with the federal government. The correct answer would be option D.
Federal funds (or fed funds) are surplus reserves that commercial financial institutions and other banking firms deposit at local Federal Reserve banks. These funds can then be lent to other market participants who lack the necessary cash on hand to satisfy their borrowing and reserve needs. Since the majority of these loans are issued for the overnight period, they are unsecured and have a relatively low interest rate. This is known as the federal funds rate or overnight rate.
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