Which statement about Federal funds is false?

Federal funds refer to the overnight borrowing and lending of reserves among banks to meet reserve requirements set by the Federal Reserve. When analyzing the statements regarding Federal funds, it is important to recognize their characteristics.

The statement that Federal funds are loans from the Federal Reserve to member banks is false because Federal funds transactions occur between banks themselves, not directly involving the Federal Reserve. These funds represent excess reserves that banks lend to each other to manage their reserve balances effectively.

The other statements correctly describe Federal funds: they indeed represent funds that are in excess of reserve requirements, they typically consist of overnight loans, and they are sensitive indicators of actual market rates because they reflect the rate at which banks are willing to lend reserves to each other. Thus, the answer clearly identifies the mischaracterization of Federal funds in relation to their true mechanism and flow in the banking system.