Economics of Money, Banking and Financial Markets (12th Edition) (What's New in Economics)
Economics of Money, Banking and Financial Markets (12th Edition) (What's New in Economics)
12th Edition
ISBN: 9780134733821
Author: Frederic S. Mishkin
Publisher: PEARSON
Question
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Chapter 9, Problem 1Q
To determine

To identify: The reason for a bank to borrow money from the other bank at a higher rate than the Fed (Federal bank).

Expert Solution & Answer
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Explanation of Solution

The reason for a bank to borrow money from the other bank at a higher rate than the Fed (Federal bank) is as follows:

The Fed might put a limitation on the bank to borrow funds in the future from it, in case of simultaneously borrowing funds from Federal bank. The borrowing procedure from other banks involves fewer terms and conditions as in comparison to Federal bank, which makes it an easier way to borrow funds.

Economics Concept Introduction

Introduction: Borrow fund is the amount of money that has been taken as a loan with a maturity period and the interest has to be paid on the borrowed funds.

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