Federal Discount Rate

Posted in Finance, Accounting and Economics Terms, Total Reads: 270
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Definition: Federal Discount Rate

Federal discount rate is rate set by Federal Reserve which is needed to regulate the money circulation by giving banks and financial bodies to offer debt at discounted values.

For example, in case a bank wants to finance a major industrial project but may not have the time to wait for deposits or interest income(on loan payments) to come in. In such cases the bank can quickly raise that amount from the Federal Reserve at federal discount rate or other banks at an interest rate equal to or higher than the Federal funds rate.


Advantages:

• Regulate the supply of money in the economy

• Also Regulate the inflation rate in the country


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