ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The federal discount rate is the interest rate the Federal Reserve (Fed) charges banks to borrow funds from a Federal Reserve bank. The Fed discount rate is set by the Fed’s board of governors, and can be adjusted up or down as a tool of monetary policy.

Detailed explanation-2: -A: The Federal Reserve sets a key interest rate, called the federal funds rate, which is the rate banks charge to each other for very short-term loans. The Federal Reserve lowered the target range for the federal funds rate to 0 to 1/4 percent.

Detailed explanation-3: -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.

Detailed explanation-4: -A bank borrows from another bank’s reserve if it is short of cash at the end of the day. That’s where the FFR comes in. It’s the rate that banks charge each other for overnight loans. The Fed maintained its target FFR range at 0% to 0.25% in January 2022, then increased it to 0.25% to 0.50% in March 2022.