If a Central Bank Sets Its Discount Rate (Or Rate

question 23

Essay

If a central bank sets its discount rate (or rate it lends to banks) below the rate it pays on reserves, what would happen?

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Definitions:

Comparison Universe

The set of money managers employing similar investment styles, used for assessing the relative performance of a portfolio manager.

Mutual Funds

Investment programs funded by shareholders that trade in diversified holdings and are managed by professional investment managers.

Dollar-Weighted Return

A method of calculating an investment's return that accounts for the timing and amount of cash flows into and out of the investment.

Time-Weighted Return

A measure of the historical performance of an investment portfolio which adjusts for external flows, such as cash injections or withdrawals.