The interest rate that banks use as a reference point for interest rates on a wide range of loans to businesses and individuals is the:
A) Discount rate
B) Term auction rate
C) Prime interest rate
D) Real interest rate

Question

Quizplus · Accepted Answer

The prime interest rate is the interest rate that banks charge their most creditworthy customers, and it is used as a benchmark for a variety of loans, including credit cards, car loans, and mortgages. This rate is also used as a reference point for other interest rates in the financial system, making it an important indicator of overall economic activity. The other options, such as the discount rate and term auction rate, are typically used for more specific purposes, such as monetary policy implementations by the Federal Reserve. The real interest rate refers to the nominal interest rate adjusted for inflation, and while it is important in its own right, it is not typically used as a benchmark for loans in the same way that the prime interest rate is.

The Interest Rate That Banks Use as a Reference Point