Question

compare and contrast the federal funds rate, the discount rate, and the prime rate. (4 points) short answer rubric (4 points) points awarded criteria 4 the answer is very clear. the answer is fully supported by details. there may be a few errors in grammar, usage, or mechanics. errors do not interfere

Explanation:

The federal funds rate is the interest rate at which depository institutions lend reserve balances to other depository institutions overnight. The discount rate is the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank's lending facility - the discount window. The prime rate is the interest rate that commercial banks charge their most credit - worthy customers, usually large corporations. The federal funds rate is determined by market forces in the inter - bank lending market and is influenced by the Federal Reserve's monetary policy. The discount rate is set by the Federal Reserve. The prime rate is set by individual banks and is often tied to the federal funds rate or the discount rate, generally being higher than both as it is for low - risk borrowers. All three rates are important in the financial system as they affect borrowing costs and the availability of credit.

Answer:

The federal funds rate is for inter - bank overnight lending. The discount rate is for bank borrowing from the Fed. The prime rate is for banks' most credit - worthy customers. The federal funds rate is market - determined with Fed influence, the discount rate is set by the Fed, and the prime rate is set by banks and is usually higher than the other two.