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Federal Discount Rate |
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The Federal Discount rate is the rate of interest member banks pay for secured overnight borrowing. The Federal Discount rate is an administered rate meaning that the Board of Directors at each Federal Reserve Bank set this rate, not the market. From time to time, member banks find it necessary to borrow from the Federal Reserve rather than from each other. When the Federal Discount rate is high, it costs more to borrow funds so banks borrow less. With the supply of money tightened, short-term interest rates increase and vice versa. That’s how the Federal Discount rate helps the Federal government control available funding.
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Credit Card Definitions > F - M > Federal Discount Rate
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