Question

"When The Bank of Bank County borrows funds from the Federal Reserve; the rate the Fed charges the commercial bank is called the _____ rate."

Answer 1

Answer: Bank Rate/ Discount Rate

Step-by-step explanation:

The Bank Rate is the interest rate that the Fed as the country's Central Bank charges commercial banks when they borrow money from it. The loans given are usually short term in nature.

The Bank Rate is a very useful tool in Monetary Policy by the Central Bank. If the Fed for instance would like to increase Economic activity by injecting cash into the economy, they can lower the bank rate and thus encourage more banks to loan money from them which will then be loaned to the public. If the Fed wanted to decrease Economic activity, the reverse would hold true.