Question

Bank Of The North (B of N) gave out large loans to many of their customers. After reviewing the bank’s records, B of N sees that the bank is now below the Federal Reserve’s minimum reserve requirement. A member bank, Helper Bank, has excess reserves. B Of N borrows enough money from Helper Bank to reach their reserve requirement. The rate of interest that B of N will pay to Helper Bank for the loan is the ________ rate.a. intrabank b. institutional c. federal funds

Answer 1

Answer:

c. federal funds

Explanation:

As this case is concerned, Bank Of The North pay the interest to Helper Bank for the loan as per the Federal Fund rate.

Federal fund rate is the rate of interest on which one bank gives short term or overnight loan to other banks. The interest rate at which federal funds are being borrowed and lent is known as the federal fund rate. This rate is set based on the principle of demand and supply. For instance, if the demand is higher than the supply, this rate will go up.