Question
What is the purpose of the discount rate?
Multiple choice question.
To give banks a source of low-interest loans that do not require collateral
To give banks an opportunity to lend money to the Fed at a higher interest rate than they can receive elsewhere
To give banks a backup source of low-interest liquidity if they cannot get funds in the money market
To give banks a source of high-interest loans in case of a bank run
Multiple choice question.
To give banks a source of low-interest loans that do not require collateral
To give banks an opportunity to lend money to the Fed at a higher interest rate than they can receive elsewhere
To give banks a backup source of low-interest liquidity if they cannot get funds in the money market
To give banks a source of high-interest loans in case of a bank run
Answers
GPT-4o mini
The correct answer is:
**To give banks a backup source of low-interest liquidity if they cannot get funds in the money market.**
The discount rate is the interest rate charged by central banks on the loans extended to commercial banks. It serves as a tool to ensure banks have access to funds when they need liquidity.
**To give banks a backup source of low-interest liquidity if they cannot get funds in the money market.**
The discount rate is the interest rate charged by central banks on the loans extended to commercial banks. It serves as a tool to ensure banks have access to funds when they need liquidity.