Question

The interest rate that banks charge one another for overnight borrowing is known as the:

Select one:

a. LIBOR rate

b. federal discount rate

c. federal funds rate

d. prime rate

e. T-Bill + 6% floating rate

Answer 1

The rate at which one bank borrows money from other Bank at overnight borrowing method is known as the Federal Funds Rate

Therefore (c) is the answer to this question

Prime rate is the rate at which banks lend to the customers at credit

Therefore (d) is wrong

T Bill + 6% floating rate is concerned with the treasury bills issued by the treasury but not banks

Therefore (e) is wrong

the federal discount rate is nothing but the Federal Reserve charges the banks for borrowing the reserves

Therefore (b) is wrong

LIBIR rate is the interest rate is estimated by the leading banks of London on the whole and that is the reason why

(a) is the answer to this question