The discount rates charged by the Federal Reserve banks on loans to depository institutions is lowest for seasonal credit.

Question

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The discount rate charged by the Federal Reserve banks on loans to depository institutions is lowest for seasonal credit because seasonal credit is considered to be a low-risk loan. Seasonal credit is typically used by businesses to finance their seasonal inventory needs, and it is typically repaid within a short period of time. As a result, the Federal Reserve banks charge a lower discount rate on seasonal credit than on other types of loans.

The Discount Rates Charged by the Federal Reserve Banks on Loans