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Glossary Term: DISCOUNT RATE

Definition(s) for DISCOUNT RATE:


1. ) may refer to : 1) the interest rate charged by the Federal Reserve on loans to its member banks. A rise in the discount rate indicates increasing interest rates in the money and capital markets. 2) the interest rate used to determine the present value of a series of future cash flows or the rate at which an investment's revenues and costs are discounted in order to calculate its present value.

2. ) The interest rate charged onloans by the Federal Reserve to member banks.

3. ) The interest rate at which eligible depository institutions may borrow funds, usually for short periods, directly from a Federal Reserve Bank. The law requires the board of directors of each Reserve Bank to establish the discount rate every 14 days subject to the approval of the Board of Governors.

4. ) The discount rate is the interest rate charged to depository institutions on loans they receive from their regional Federal Reserve Bank's lending facility--the discount window. The discount rate charged for primary credit (the primary credit rate) is set above the usual level of short-term market interest rates. (Because primary credit is the Federal Reserve's main discount window program, the Federal Reserve at times uses the term discount rate to mean the primary credit rate.) The discount rate on secondary credit is above the rate on primary credit. The discount rate for seasonal credit is an average of selected market rates.



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