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How does the discount rate affect the decisions of banks in setting their specific interest rates?
Weegy: The discount rate is used in present value calculations, so it's a good measure of what an asset is worth now. Then, the bank would want to look at their core deposits, which can then be used to estimate (to a certain extent) dividend liabilities. [ ] (More)
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Asked 9/10/2012 3:53:28 PM
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How does the discount rate affect the decisions of banks in setting their specific interest rates?
Weegy: The discount rate is the interest rate at which Federal Reserve banks lend reserves to depository institutions, [ primarily to cuahle these institutions to meet their reserve requirements.2 The relationship Vori recent state’nicnt on the importance of the discount ate, see Saol 11. Hvmans, ct a! ‘‘‘the U.S. Outlook for 1982.’’ tscouoioic Outlook (‘NA )\Vinter 1982), p.3. For a stateiiient ahootthe clis’ count rate as a pivotal rate in tI 11’ 15a rkct see Cco “ge N It-ICe ii t’y - ‘flit’ f”eile,’ot Jie.sei’rc fliscooot \Ui,iclo,e ) Rotgers University Press. 1960), p. 6. 2 As aresultof the Monetary Control Act of 1980, enacted on March :31 . 1980, dl clepos ito iv inst tn tic, ‘is ivill Ii ave the s Ills C’ rest’I’ve hetween the discount rate and market interest rate-s can he illustrated using a sirnple, static model of interest rates called the loutm (ill/C fit tids t heorti. According to the loanahie funds theory, interest rates are determined by’ the intersection of the demand fhr and supply of credit, as illustrated in figure 1. The demand for credit consists of inx-estsnent demand, government demand (deficits) and changes in the demand for money.0 The supply of credit is coin— posed of public and private savings and changes in the supply of money, Changes in the discount rate affect market interest rates only’ to the extent that ] (More)
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Asked 9/10/2012 4:04:09 PM
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