Discount Rate
Definition
The discount rate is the interest rate at which commercial banks can borrow funds directly from the Federal Reserve.
Analogy
Think of the discount rate as a special sale price offered exclusively to commercial banks. It's like when a store offers its employees a discounted price on merchandise before it becomes available to regular customers.
Related terms
Federal Funds Rate: The interest rate at which depository institutions lend balances to each other overnight.
Prime Rate: The interest rate that commercial banks charge their most creditworthy customers for short-term loans.
Monetary Policy: Actions taken by central banks, such as changing interest rates, to influence economic activity and control inflation.
"Discount Rate" appears in:
Study guides (4)
Additional resources (1)
Practice Questions (2)
- What's the effect of a decrease in the discount rate on the money supply?
- What's the relationship between the federal funds rate and the discount rate?
Resources
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