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: -The federal funds rate, or fed funds rate, is set by the Federal Open Market Committee (FOMC) of the Federal Reserve. It can be defined as the interest rate charged to various lending institutions such as banks on unsecured loans that are borrowed overnight.

Detailed explanation-3: -The fed funds rate is the interest rate that depository institutions-banks, savings and loans, and credit unions-charge each other for overnight loans. The discount rate is the interest rate that Federal Reserve Banks charge when they make collateralized loans-usually overnight-to depository institutions.

Detailed explanation-4: -The Federal Reserve and other central banks maintain discount windows, referring to the loans they make at an administered discount rate to commercial banks and other deposit-taking firms. Discount window borrowing tends to be short-term-usually overnight-and collateralized.

Detailed explanation-5: -The federal funds rate is the target interest rate set by the FOMC. This is the rate at which commercial banks borrow and lend their excess reserves to each other overnight. The FOMC sets a target federal funds rate eight times a year, based on prevailing economic conditions.