Question

Bank loans from the Federal Reserve are called ________ and represent a ________ of funds for the bank.

Answer 1

Answer:

B) discount loans; source

Explanation:

The central bank has a role in acting as the lender of last resort. Commercials banks and other institutions will turn to the Fed if they cannot borrow funds from any other sources. The central bank, through the Fed, uses the discount window facility to lend to commercial banks.

The loans that the fed advances to commercial banks are called the discount loans.  Discounts loans are short term in nature and are used to meet liquidity shortfalls. The interest rate that the Fed charge for discount window loans is the discount rate. Banks prefer to borrow from other banks because it is cheaper. If a bank cannot get funds from other banks, the discount loans serve a source of funds to the bank.