often exhibits a high level of volatility over short periods of time. To see this, Exhibit 6.6 presents a Bloomberg screen of the daily effective federal funds rate for the period August 14, 2001 through October 31, 2001. The screen also shows the daily range of rates at which federal funds were traded. The volatility is especially pronounced at the end of a quarter as financial institution engage in balance sheet "window dressing."     Market for Federal Funds Although the term of most federal funds transactions is overnight, there are longer-term transactions that range from one week to one year. As an illustration, Exhibit 6.7 presents a Bloomberg screen the overnight and term federal funds rates on October 31, 2001. Trading typically takes place directly between buyer and seller usually between a large bank and one of its correspondent banks. Some federal funds transactions require the use of a broker. The broker stays in constant touch with prospective buyers/sell- ers and arranging deals between for a commission. Brokers provide another service to this market in (normally) unsecured loans because they often can give lenders credit analyses of borrowers if the lenders have not done business with them previously. Although the federal funds market is known to be very large, no pre- cise trading volume numbers are available. One indicator of the level of trading in this market is the Federal Reserve data series for domestically chartered banks in the United States. That series records monthly aver- ages of bank borrowing from other banks in the United States. In the Fed- eral Reserve Bulletin of September 2001, this figure is $362.3 billion as of June 2001. A high percentage of that amount is due to federal funds. The magnitude of this number provides one reason why this market and this borrowing arrangement are so important.       A bankers acceptance is a written promise issued by a borrower to a bank to repay borrowed funds. The lending bank lends funds and in return accepts the ultimate responsibility to repay the loan to its holder, hence the name-bankers acceptance. The acceptance is negotiable and can be sold in the secondary market. The investor who buys the acceptance can collect the loan on the day repayment is due. If the borrower defaults, the investor has legal recourse to the bank that made the first acceptance. Bankers acceptances are also know as bills of exchange, bank bills, trade bills, or commercial bills. Essentially bankers acceptances are instruments created to facilitate commercial trade transactions. The use of bankers acceptances to finance commercial transactions is known as acceptance financing. The transac-