Question

The interest rate that the Fed charges banks that borrow money from it is called A. the discount rate. B. the federal rate. C. the monetary rate. D. the bank-member rate.

Answer 1

The answer is A. the discount rate.

Answer 2

Answer:

The correct answer is A. The interest rate that the Fed charges banks that borrow money from it is called the discount rate.

Explanation:

The discount rate is the interest rate at which a bank can sell (rediscount) bills of exchange to the central bank. This enables it to obtain liquidity in the short term. It pays the discount rate as a price (as a discount from the nominal value).

The Federal Reserve uses two discount rates for very short-term loans it gives to financial institutions during the "discount window": the "primary rate" and the "secondary rate”.