Question

The prime interest rate is

the rate the Fed charges member banks to borrow money.
set directly by the Fed through monetary policy.
the rate banks charge each other to borrow money.
set directly by the Fed through fiscal policy.
the rate banks charge their best customers to borrow money

Answer 1

Answer: The Prime Rate is the interest rate that banks use as a basis to set rates for different types of loans, credit cards and lines of credit.

Explanation: The prime rate is an interest rate determined by individual banks. It is often used as a reference rate (also called the base rate) for many types of loans, including loans to small businesses and credit card loans. On its H.15 statistical release, "Selected Interest Rates," the Board reports the prime rate posted by the majority of the largest twenty-five banks. Although the Federal Reserve has no direct role in setting the prime rate, many banks choose to set their prime rates based partly on the target level of the federal funds rate--the rate that banks charge each other for short-term loans--established by the Federal Open Market Committee.