Sia
Question
Statistics
Posted 9 months ago
The Bank of Dodge had several large withdrawals and its reserves have fallen below its required reserves. Other banks are unwilling to lend it money, so it has turned to the emergency lending division of the Federal Reserve for an overnight loan.
What is the name of the interest rate this bank will be charged for an overnight loan from the Federal Reserve?
Choose 1 answer:
(A) The discount rate
(B) The prime rate
(C) The Federal Funds rate
(D) The exchange rate
(E) The IOER (interest rate on excess reserves)
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Answer from Sia
Posted 9 months ago
Solution by Steps
step 1
Identify the context of the problem: The Bank of Dodge needs an overnight loan from the Federal Reserve because its reserves have fallen below the required level
step 2
Determine the specific interest rate charged by the Federal Reserve for such emergency overnight loans
step 3
The interest rate charged by the Federal Reserve for emergency overnight loans to banks is known as the discount rate
A
Key Concept
Discount Rate
Explanation
The discount rate is the interest rate charged by the Federal Reserve to commercial banks for short-term loans, typically overnight, to meet reserve requirements.
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