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A healthy bank can make risk free profit if - the discount rate is greater than...

A healthy bank can make risk free profit if

- the discount rate is greater than the federal funds rate

-the interest rate the Fed pays on banks' reserves is lower than the discount rate

-the discount rate is lower than the federal funds rate

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Answer #1

Option 3

-the discount rate is lower than the federal funds rate

A discount rate is a rate charged by the Fed on the borrowing from the Fed by commercial banks.

A federal fund rate is a rate charged by banks to each other for overnight borrowings

The healthy bank can borrow from Fed at discount rate and lend at federal fund rate to banks if the discount rate is lower than the federal fund rate because the borrowing from Fed is easy for healthy banks.

The earning from it is almost risk-free.

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