A Bank Finds Itself Short of Desired Reserves and Therefore

question 128

Multiple Choice

A bank finds itself short of desired reserves and therefore borrows from another chartered bank.What is the term for the interest rate on this loan?  

• A) the liquidity rate 
• B) the prime rate 
• C) the discount rate 
• D) the overnight rate

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Definitions:

Credit To Inventory

An accounting entry that increases the inventory account, reflecting the addition of goods or the correction of an underreported inventory balance.

Credit Period

The amount of time the buyer is allowed in which to pay the seller.

Credit Memo

A document issued by a seller to a buyer, reducing the amount the buyer owes to the seller under previous invoices.

Percent Of Cash Discount

The percentage reduction in price offered for prompt payment of invoices to encourage early settlement of accounts payable.