SIE practice questionmediumDiscount Rate
The discount rate is the interest rate at which:
- AThe Federal Reserve lends to member banks through the discount window✓ Correct answer
- BCorporations borrow from commercial banks
- CBanks lend to each other overnight
- DThe U.S. Treasury borrows from foreign governments
Explanation
Why A — The Federal Reserve lends to member banks through the discount window
The discount rate is the rate the Federal Reserve charges member banks for short-term borrowing directly from the Fed's discount window. The federal funds rate is the overnight rate banks charge each other, and raising the discount rate makes Fed borrowing more expensive.
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