What is the major difference between the federal funds
rate and the discount rate?
The interest rates refer to the economic component which is quite important in an economy. The interest rates are a reason of change for many economic variables. It is considered to be beneficial because it can allow the people to invest or to save and generally a cause of change in the real variables of the economy.
The major different between the two types of rates are:-
The Federal funds target rate refers to the rate at which the depository institutions, banks. Savings, loans providing institutions and other credit unions etc charge for loans from each other and the process generally takes place overnight.
On the other hand, the discount rate is the rate at which the Federal Reserve Banks charge for the loans but the loans in this case are collateralized and the charges are made overnight to the depository institutions.
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