Economics?

Posted by admin on November 18th, 2009 at 01:14pm

If the Federal funds rate is 6% and the discount rate is 5.1% to whom will a bank be more likely to go for a loan? Explain your answer.

2 Comments for Economics?

1. wk | November 18th, 2009 at 1:14 pm

The Fed Funds rate is used by banks to meet federal reserve requirements. So that means that it cannot borrow from the same entity requiring it to meet a reserve. Discount rate is the rate the the fed charges banks to loan against their paper.
2. Druid202 | November 18th, 2009 at 1:39 pm

basically discounts rate is what the fed charges for a loan to a bank and fed funds rate is rate which is charged by one bank to another. In this situation, banks will go to the fed but even with the same rates sometimes there are other constraints which doesn’t allow banks to get a loan with lower interest.