The discount rate is
A)the rate at which public banks lend to other public banks.
B)the rate at which the Fed lends to banks.
C)the percentage difference between the face value of a Treasury bond and what the Fed pays for it.
D)the percentage of deposits banks hold as excess reserves.

Question

Quizplus · Accepted Answer

The discount rate is the interest rate at which the Federal Reserve System (Fed) lends money to banks and other financial institutions. This makes option B the correct answer. Option A is not correct because public banks do not lend to other public banks at a specific rate. Option C is not correct as it refers to the bid-to-ask spread, which is not related to the discount rate. Option D is incorrect as it refers to the reserve ratio, which is different from the discount rate.

The Discount Rate Is