The Bank of Key West is not going to have enough reserves at the end of the busi
ID: 1117149 • Letter: T
Question
The Bank of Key West is not going to have enough reserves at the end of the business day to meet its borrow money from other banks at a rate of 0.55%. Using this information answer the following questions. 1. What is the federal funds rate? 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 theFederal Reserve at a rate of 0.75%. Second, it could 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 They would become irrelevant O They should remain unchanged. O They would decrease. O They would also increase.Explanation / Answer
Ans:
1) federal funds rate = 0.55%
The federal funds rate is the interest rate at which depository institutions such as banks and credit unions, lend reserve balances to other depository institutions overnight.
2) Discount rate = 0.75%
Discount rate is the rate at which US Federal Reserve lends to other banks.
3) They would also increase
The increase in the federal fund rate target mean that other short-term interest rates will increase.
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