Question

The discount rate is usually lower than the federal funds rate because the Federal Reserve wants to encourage banks to borrow and lend from each other, rather from the Fed.

True

False

Answer 1

The Fed Funds rate is the interest rate , that the banks charges one another that borrow reserves from it.

The discount rate, is the rate that the Fed charges banks when borrowing reserves from it.

Usually banks borrow funds from the Federal funds market,

The statement is FALSE.

If the discount rate is lower then the banks will prefer to borrow funds from the Federal reserve when they need loans to offer to the consumers rather than by borrowing reserves from each other.