10 Questions
Which institution is charged the discount rate by the Central Bank?
Commercial banks
What is the purpose of the discount rate?
To provide emergency funding for distressed banks
What does a discount rate based on the instrument's par value and the amount of the discount interpret?
Securities issued at a discount to par
What is one of the risks associated with some securities issued at a discount to par?
Call risk
What is the relationship between rates and maturation?
Duration
The discount rate is typically lower than the interbank borrowing rates.
False
The discount rate is used as an emergency option for banks in distress.
True
Discount rates can signal weakness to other market participants and investors.
True
Discount rates are based on the maturity of short-term money market instruments.
False
Discount rates are higher for securities issued at a price lower than the stated par value.
False
Test your knowledge on asset and liability discount rates and their role in financial markets. Explore the purpose, interest rates, and implications of these emergency options for banks.
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