Map dun Sapling Learning mecmilan learning The Bank of Key West is not going to
ID: 1116931 • Letter: M
Question
Map dun Sapling Learning mecmilan learning The Bank of Key West is not going to have enough reserves at the end of the business day to meet its reserve requirement of 10%. It currently has two options to borrow money overnight in order to meet the requirement. First, it could borrow money from t borrow money from other banks at a rate of 0.15%. Using this information answer the following questions he Federal Reserve at a rate of 1.55%. Second, it could 1. What is the federal funds rate? Number 2. What is the discount rate? Number 3. What would happen to other short-term interest rates if the Fed increases its federal funds rate target? O O O O They would decrease They would also increase They should remain unchanged They would become irrelevant. Previous Give Up & View Solution 0 Check Answer Next Exit HintExplanation / Answer
The discount rate is the rate at which the banks take loans from the Fed. The decrease in the discount rate decreases the Federal funds rate. The Federal funds rate is the rate at which the banks extend loans to other banks and financial institution in Federal funds market. The increase in the interest rate decreases the demand for loanable funds in the market. The amount of reserve decreases in the economy.
Therefore, the Federal funds rate is 0.15%
Therefore, the discount rate is 1.55%
The correct option is