What is Interbank Rates in Forex Trading?

Interbank rate also known as federal funds rate is the interest charged on small term loans made between the larger financial institutions. Usually banks borrow short term loan from other banks to ensure that they have enough liquidity for their immediate needs. The word interbank is also state the interest rate charged when financial institutions conduct wholesale transactions in foreign currencies with banks in other nations. The interest rate charged by the lender bank is based on the current federal funds rate. In United State of America, the interest rate is fixed by Federal Reserve, also known as overnight rate or interbank rate.