When a Member Bank Borrows Reserves from the Fed

question 1

Multiple Choice

When a member bank borrows reserves from the Fed,

• A) it pays an interest rate called the discount rate.
• B) it pays no interest rate but is required to repay the loan within the stipulated period.
• C) it pays an interest rate equivalent to the coupon rate on long-term government bonds.
• D) it pays an interest rate equal to the federal funds in the reserves market.

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Definitions:

Subsequent Holder

An individual or entity that acquires a negotiable instrument, like a check or promissory note, after it has been issued or transferred.

Transfer Warranties

Legal assurances given by a seller to a buyer regarding the title, quality, and condition of goods or property being sold.

Check-Collection

The process of receiving and processing checks to obtain payment from the banking institutions on which they are drawn.

Disclaimed

Refused to acknowledge or accept something, especially legal claims or responsibility.