Question

The interest rate the Fed charges for overnight loans is known as the

Answer 1

The interest rate the Fed charges for overnight loans is known as the discount rate.

Answer 2

Answer:

The interest rate the Fed charges for overnight loans is known as the discount rate.

Explanation:

In monetary policy, the discount rate is the interest rate at which a credit institution, such as a bank, pays short-term funds directly to the Federal Reserve. Clearly the bank will never issue loans to customers and the state with a rate lower than the discount rate.

The discount rate informs the entire structure of interest rates, and it is the monetary lever that central banks use to regulate the money supply.

The discount rate is also used to assess the current value of future cash flows generated by an investment project; technically it is a cash flow discounting operation. The discount rate used varies from project to project and can be obtained from various information sources, at the discretion of the evaluator. Depending on the methodology used in the valuation of the investment, the discount rate is calculated in different ways and takes on a different wording.