What is the discount rate?(1 point)

Question

Responses

The discount rate is the interest rate banks charge each other for overnight and short-term lending.
The discount rate is the interest rate banks charge each other for overnight and short-term lending.

The discount rate is the interest rate at which the Federal Reserve charges to financial institutions on loans issued at the discount window.
The discount rate is the interest rate at which the Federal Reserve charges to financial institutions on loans issued at the discount window.

The discount rate is a misnomer, as it is the interest rate at which financial institutions charge to the riskiest of borrowers.
The discount rate is a misnomer, as it is the interest rate at which financial institutions charge to the riskiest of borrowers.

The discount rate is interchangeable with prime rate, the interest rate at which financial institutions charge to its least-risky, or best, customers.
The discount rate is interchangeable with prime rate, the interest rate at which financial institutions charge to its least-risky, or best, customers.

Answer 1

The correct response is:

The discount rate is the interest rate at which the Federal Reserve charges to financial institutions on loans issued at the discount window.

This definition accurately describes the discount rate in the context of monetary policy and banking.