What is referred to as the rate charged to banks for borrowing money from the 11th District Federal Reserve bank?

What is referred to as the rate charged to banks for borrowing money from the 11th District Federal Reserve bank?

• A. Cost of Funds Index (COFI)
• B. Prime Rate
• C. Discount Rate
• D. Federal Funds Rate

Answer: (A)

The rate charged to banks for borrowing money from the 11th District Federal Reserve Bank is known as the Discount Rate. This is the interest rate set by the Federal Reserve for financial institutions when they borrow from the central bank's discount window. It serves as a primary tool in monetary policy, influencing other interest rates throughout the economy. The Cost of Funds Index (COFI) refers to the average interest rate paid by financial institutions for their funds. The Prime Rate is the interest rate that banks charge their most creditworthy customers and is often influenced by the Federal Funds Rate, which is the rate at which banks lend to each other overnight. However, in this scenario, the correct term for the specific rate charged to banks by the 11th District Federal Reserve is the Discount Rate. Understanding these distinct rates is crucial for differentiating between the various aspects of monetary policy and banking operations.

The rate charged to banks for borrowing money from the 11th District Federal Reserve Bank is known as the Discount Rate. This is the interest rate set by the Federal Reserve for financial institutions when they borrow from the central bank's discount window. It serves as a primary tool in monetary policy, influencing other interest rates throughout the economy.

The Cost of Funds Index (COFI) refers to the average interest rate paid by financial institutions for their funds. The Prime Rate is the interest rate that banks charge their most creditworthy customers and is often influenced by the Federal Funds Rate, which is the rate at which banks lend to each other overnight. However, in this scenario, the correct term for the specific rate charged to banks by the 11th District Federal Reserve is the Discount Rate. Understanding these distinct rates is crucial for differentiating between the various aspects of monetary policy and banking operations.