The Federal Reserve Bank, or the Fed, is able to adjust which interest rate?

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BlackTom AI · Accepted Answer

The question asks which interest rate the Federal Reserve Bank, or the Fed, has the power to adjust.
Option 1: Fed Fund Rate. This phrase likely refers to the federal funds rate, which is the target interest rate set by the Federal Open Market Committee (FOMC) and influenced by the Fed’s open market operations. However, the Fed does not directly set the fed funds rate; it targets it and uses tools to move the actual rate toward that target. This makes the option somewhat misleading.
Option 2: Prime Rate. The prime rate is the interest rate that commercial banks charge their most creditworthy customers, and it is influenced by the federal funds rate but is not directly set by the Fed. Banks determine the prime rate based on market conditions and the federal funds rate, so this is not a direct Fed adjustment.
Option 3: LIBOR. LIBOR (or its successor in practice, such as SOFR) is a benchmark rate used to price many loans and derivatives globally. It is not controlled or directly adjustable by the Federal Reserve; it is set by interbank submissions and market expectations, not by Fed policy actions.
Option 4: Discount Rate. The discount rate is the interest rate the Federal Reserve Banks charge when lending to banks and other depository institutions. This rate is directly set by the Fed’s regional banks and is a monetary policy tool the Fed can adjust to influence lending and liquidity.
In summary, among the options, the only rate that the Fed directly controls and can adjust is the discount rate, whereas the others are influenced by Fed policy but not directly set by the Fed itself.

ORLJ4002001 Exam 2: Finance

The Federal Reserve Bank, or the Fed, is able to adjust which interest rate?

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ORLJ4002001 Exam 2: Finance

The Federal Reserve Bank, or the Fed, is able to adjust which interest rate?

View Explanation

Log in for full answers

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In August 2021, which type of consumer loan had the HIGHEST interest rate?

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Which of the following statement is true?

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