Although a lot of us may still be taking some time to adjust to the reality of Donald Trump as president, but the markets seem to have accepted American's new reality. Last night, the U.S. markets took a sharp dip as Trump began closing in on a major and unexpected victory. At one point last night, there were fears the dollar would sharply decline the way the pound did after the EU referendum. But does not appear to be the case. The sharp decline appears to be over and U.S. markets have begun rising again. The S&P and Dow Jones were up 1% BBC reported today. There are analysis guessing that Trump's relatively calm acceptance speech calling for unity did enough to quell the markets' fear of a total meltdown.

Meanwhile, the Mexican peso hit an all-time low following Trump's election. The currency declined more than 12 percent against the dollar, New York Times reports. This comes in reaction to Trump's signature proposal to build a wall along the Mexican border and crack down on immigration reform.

Interestingly enough, health-care stocks are projected to increase in value in the news of a Trump presidency. Health-care stocks have steadily been declining over the years as Obama, and Clinton repeatedly promised to continue, enacted major healthcare reform. But now with healthcare reform (dare we even say, reversal) completely off the table, investors are said to grow more confident in investing in the stocks again.

"The case for health-care stocks is clear cut," said Eddie Perkin, chief equity investment officer at Eaton Vance, told the Wall Street Journal. "It has been the worst-performing sector in the S&P 500 year-to-date, and the removal of political risk is a near certainty."

Credit to the overall positive outlook for the markets can also be given credit to Clinton's and Obama's unity-emphasizing concession speeches, highlighting the peaceful transition of power being a cherished hallmark of the American democracy.

For now, the markets are stable. But it's unclear what announcements or behavior we can expect from Trump in the lead up to inauguration day, he is currently assembling his cabinet team and is expected to meet with President Obama in the oval office on Thursday.

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The Federal Reserve sets the guardrails for the federal funds rate, and through that helps control the money supply for the nation.

When you take out a loan for a car, charge something to your credit card, or get a personal line of credit, there is going to be an interest rate that applies to your loan.

A lot of different factors go into what you will be charged, including your own personal credit score. But even those with flawless credit still see a minimum charge that they can't get around. That all goes back to the Federal Funds Rate.

One thing consumers rarely realize is that all of our banks are lending money to each other every night. Banks are legally required to maintain a certain percentage of their deposits in non-interest-bearing accounts at the Federal Reserve to ensure they have enough money to cover any withdrawals that may unexpectedly come up. However, deposits can fluctuate and it's very common for some banks to exceed the requirement on certain days while some fall short. In cases like this, banks actually lend each other money to ensure they meet the minimum balance. It's a bit hard to imagine these multibillion-dollar financial institutions needing to borrow money to tide them over for a bit, but it happens every single night at the Federal Reserve. It's also a nice deal for those with balances above the reserve balance requirement to earn a bit of money with cash that would normally just be sitting there.

The Federal Reserve The Federal Reserve


The exact interest rate the banks will charge each other is a matter of negotiation between them, but the Federal Open Market Committee (FOMC) (the arm of the Federal Reserve that sets monetary policy) meets eight times a year to set a target rate. They evaluate a multitude of economic indicators including unemployment, inflation, and consumer confidence to decide the best rate to keep the country in business. The weighted average of all interest rates across these interbank loans is the effective federal funds rate.

This rate has a huge impact on the economy overall as well as your personal finances. The federal funds rate is essentially the cheapest money available to a bank and that feeds into all of the other loans they make. Banks will add a slight upcharge to the rate set by the Fed to determine what is the lowest interest that they will announce for their most creditworthy customers, also known as the prime rate. If you have a variable interest rate loan (very common with credit cards and some student loans), it's likely that the interest rate you pay is a set percentage on top of that prime rate that your lender is paying. That's why in times of low interest rates (it was set at 0% during the Great Recession), a lot of borrowers should go for fixed interest rate loans that won't increase. However, if the federal funds rate was relatively high (it went up to 20% in the early 1980's), a variable interest rate loan may be a better decision as you would be charged less interest should the rate drop without the need to refinance.

The federal funds rate also has a major impact on your investment portfolio. The stock market reacts very strongly to any changes in interest rates from the Federal Reserve, as a lower rate makes it cheaper for companies to borrow and reinvest while a higher rate may restrict capital and slow short-term growth. If you have a significant portion of your investments in equities, a small change in the federal funds rate can have a large impact on your net worth.

Getty Images/Maria Stavreva

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