A bank finds itself short of required reserves and therefore borrows from another commercial bank. The interest rate on this loan is
A) zero.
B) the prime rate.
C) the discount rate.
D) the federal funds rate.
E) the required reserve ratio.

Question

Quizplus · Accepted Answer

The interest rate on interbank loans, where one bank borrows from another, is known as the federal funds rate. This is the rate at which banks lend reserves to each other overnight to meet their reserve requirements.

A Bank Finds Itself Short of Required Reserves and Therefore