Question

The discount rate is A. the interest rate commercial banks charge each other for borrowing funds. B. the interest rate commercial banks charge their most creditworthy customers. C. the interest rate the Fed charges commercial banks for borrowing funds. D. the interest rate commercial banks c

Answer 1

Answer:

The correct answer is letter "C": the interest rate the Fed charges commercial banks for borrowing funds.

Explanation:

The discount rate is the amount of interest the Federal Reserve (Fed) charges private banks for short-term loans. Banks will often borrow from each other for short-term needs with central banks like the Fed typically acting as a lender of last resort. As a result, it likes to keep its discount rates somewhere above what private banks are charging each other.