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Questions and Answers
Which institution is charged the discount rate by the Central Bank?
Which institution is charged the discount rate by the Central Bank?
- Market participants
- Financial institutions
- Commercial banks (correct)
- Investors
What is the purpose of the discount rate?
What is the purpose of the discount rate?
- To encourage interbank borrowing
- To determine the required rate of return
- To signal weakness to investors
- To provide emergency funding for distressed banks (correct)
What does a discount rate based on the instrument's par value and the amount of the discount interpret?
What does a discount rate based on the instrument's par value and the amount of the discount interpret?
- Interbank borrowing rates
- Securities issued at a discount to par (correct)
- Commercial paper and T-bills
- Short-term money market instruments
What is one of the risks associated with some securities issued at a discount to par?
What is one of the risks associated with some securities issued at a discount to par?
What is the relationship between rates and maturation?
What is the relationship between rates and maturation?
The discount rate is typically lower than the interbank borrowing rates.
The discount rate is typically lower than the interbank borrowing rates.
The discount rate is used as an emergency option for banks in distress.
The discount rate is used as an emergency option for banks in distress.
Discount rates can signal weakness to other market participants and investors.
Discount rates can signal weakness to other market participants and investors.
Discount rates are based on the maturity of short-term money market instruments.
Discount rates are based on the maturity of short-term money market instruments.
Discount rates are higher for securities issued at a price lower than the stated par value.
Discount rates are higher for securities issued at a price lower than the stated par value.
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