By Gertrude Chavez-Dreyfuss and Laura Matthews

NEW YORK (Reuters) -The effective federal funds rate – the interest banks charge each other for overnight loans to meet reserve requirements – rose unexpectedly last week ahead of quarter end, mainly on the back of shrinking cash balances at foreign banks, according to market participants.

The latest fed funds rate of 4.09% was one basis point higher than the 4.08% seen after the Fed cut interest rates at the September 16-17 meeting. It’s still within the Fed’s range of 4.00% to 4.25% though.

So-called foreign banking organizations or FBOs are major players in the roughly $100 billion fed funds market. The fed funds rate is central to the financial system as the official policy reference that the Federal Reserve sets a target range for each

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