Primary credit discount loans for profit will be zero when

Question

Quizplus · Accepted Answer

When the primary credit discount rate is lesser than the federal funds rate, banks have an incentive to borrow from the Federal Reserve at the lower primary credit rate and lend in the federal funds market at the higher rate, making a profit. However, in practice, the Federal Reserve sets the primary credit rate slightly above the federal funds target rate to discourage banks from using this facility for profit-making purposes, thus when the primary credit rate is lower, it theoretically could lead to profit, contradicting the condition for zero profit.

Primary Credit Discount Loans for Profit Will Be Zero When