| 1. | the rate of interest charged in discounting commercial paper. |
| 2. | the interest rate charged by Federal Reserve Banks on loans to their member banks, usually against government securities as collateral. |
| 3. | the rediscount rate. |
| discount rate n.
|
The rate of interest charged by the Federal Reserve System on loans it makes to the banking system.
Note: Because the Federal Reserve System lends money to the banking industry, one mechanism it has for regulating interest rates is to vary the discount rate — that is, to make the money that banks borrow relatively more or less expensive. It is likely to lower the discount rate during economic downturns to stimulate investment and raise it during upswings to check inflation.
Discount Rate
1. The interest rate that an eligible depository institution is charged to borrow short-term funds directly from a Federal Reserve Bank.
2. The interest rate used in determining the present value of future cash flows.
Investopedia Commentary
Related Links
The Federal Reserve (the Fed) Tutorial
Formulating Monetary Policy
Understanding The Time Value Of Money
See also: Discount Window, Fed Funds Rate, Federal Open Market Committee, Federal Reserve Bank, Federal Reserve System, Net Present Value, Present Value, Prime Rate
discount rate
The interest rate charged by the Federal Reserve on loans to its member banks. A change in this rate is viewed as a strong indicator of Fed policy with respect to future changes in the money supply and market interest rates. Generally, a rise in the discount rate signals increasing interest rates in the money and capital markets.
The rate at which an investment's revenues and costs are discounted in order to calculate its present value.