Question

Define the following terms:
Prime Rate:
Discount Rate:
Reserve Ratio:

Answer 1

Prime Rate- the lowest rate of interest at which money may be borrowed commercially.

Discount Rate- the minimum interest rate set by the federate reserve for lending to other banks

Answer 2

The prime rate is the best loan rate available to anyone except other banks. The discount rate is the rate of interest which a central bank charges on its loans and advances to a commercial bank. The reserve ratio is the portion of reservable liabilities that commercial banks must hold onto, rather than lend out or invest.