Question: The prime rate and other interest rates offered by banks
The prime rate, and other interest rates, offered by banks often change in the same direction as a change in the Fed’s target for the federal funds rate. As an employee of a Federal Reserve District Bank you have been told that your District Bank will be increasing its discount rate early next week. Expectations are that an increase in the discount rate will lead to an increase in the federal funds rate, which will lead to an increase in the prime rate and other bank lending rates. You have been thinking about buying a new automobile for the past couple of months. Given this information of a planned discount rate increase, you are considering buying your new automobile before the end of the week. What are the ethical issues, if any, involved in this scenario? What would you do?
Answer to relevant QuestionsA new bank has vault cash of $1 million and $5 million in deposits held at its Federal Reserve District Bank. a. If the required reserves ratio is 8 percent, what dollar amount of deposits can the bank have? b. If the ...Show how your answers in problem 6 would change if the fed lowered the cut-off between the 2 percent rate and the 8 percent rate from $40 million in transaction account balances down to $20 million. Explain how the banking interests and large, medium, and small businesses are represented on the board of directors of each Reserve Bank. Reserve Banks have at times been described as bankers’ banks due to their lending powers. What is meant by this statement? Important policy objectives of the federal government include economic growth, high employment, price stability, and a balance in international transactions. The achievement of these objectives is the responsibility of ...
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