What is the term for the interest rate at which the Federal Reserve lends money to commercial banks overnight?
Discount rate
The answer was Discount rate. Here's the why, the decoys, and the source trail.
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The discount rate is the interest rate the Federal Reserve charges commercial banks for short-term loans made through its lending facility (the discount window). The federal funds rate, by contrast, is the rate banks charge each other for overnight loans.
A good trivia question makes the wrong answers feel close. Here is the clean read on the set.
- Prime rate - a decoy; it may live near the same topic, but it does not answer this exact clue.
- Discount rate - correct answer.
- Federal funds rate - a decoy; it may live near the same topic, but it does not answer this exact clue.
- LIBOR - a decoy; it may live near the same topic, but it does not answer this exact clue.
Discount rate is the one to remember. The discount rate is the interest rate the Federal Reserve charges commercial banks for short-term loans made through its lending facility (the discount window). The Federal Reserve's discount window has been in operation since 1914, making it one of the oldest tools of U.S.
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Sources: Federal Reserve