discount rate

Examples of discount rate in the following topics:

• The Discount Rate

  • The Fed makes loans to depository institutions and charges different discount rates for each of discount windows.
  • The discount rate is the interest rate charged to commercial banks and other depository institutions on loans they receive from the Fed's lending facility, the discount window.
  • The discount rate charged for primary credit (the primary credit rate) is set above the usual level of short-term market interest rates.
  • (Because primary credit is the Federal Reserve's main discount window program, the Federal Reserve, at times, uses the term "discount rate" to mean the primary credit rate. ) The discount rate on secondary credit is above the rate on primary credit.
  • The discount rate for seasonal credit is an average of selected market rates.

• The Lender of Last Resort

  • According to the Federal Reserve Bank of Minneapolis, "the Federal Reserve has the authority and financial resources to act as 'lender of last resort' by extending credit to depository institutions or to other entities in unusual circumstances involving a national or regional emergency, where failure to obtain credit would have a severe adverse impact on the economy. " Through its discount and credit operations, Reserve Banks provide liquidity to banks to meet short-term needs stemming from seasonal fluctuations in deposits or unexpected withdrawals.
  • The rate the Fed charges banks for these loans is the discount rate (officially the primary credit rate).
  • This contributes to the effective functioning of the banking system, alleviates pressure in the reserves market and reduces the extent of unexpected movements in the interest rates.

• Control of the Money Supply

  • The central bank retains tight control over its nation's money supply through the use of open market operations, the discount rate, and reserve requirements.
  • By controlling the national interest rate, a central bank can adequately meet and further dictate the consumer demand for money.
  • A decrease in the interest rate will spark an increase in the consumer demand for money; an increase in the rate of interest will lessen its demand.
  • Changes in the interest rate also play a role in the setting of price levels.
  • The central bank's ability to predict how much money should be in circulation, given current employment rates and inflation rates, is often debated.

• Store Retailers

  • Because chains were so large, they were able to buy a wide variety of merchandise in large quantity discounts.
  • The discounts substantially lowered their cost compared to costs of single-unit retailers.
  • Discount Houses: Cut-rate retailers have existed for a long time.
  • Discount houses are characterized by an emphasis on price as their main sales appeal.
  • Their growth rate has slowed in comparison to previous decades, but they still have a huge presence in terms of their sales.

• Commercial Paper

  • Since it is not backed by collateral, only firms with excellent credit ratings from a recognized rating agency will be able to sell their commercial paper at a reasonable price.
  • Commercial paper is usually sold at a discount from face value, and carries higher interest repayment rates than bonds.
  • Typically, the longer the maturity on a note, the higher the interest rate the issuing institution must pay.
  • Interest rates fluctuate with market conditions, but are typically lower than banks' rates.
  • Once a business becomes established and builds a high credit rating, it is often cheaper to draw on a commercial paper than on a bank line of credit.

• Growth Through Monetary Policy

  • Monetary policy seeks to further economic policy goals through influencing interest rates.
  • Through monetary policy, the government exerts its power to regulate the money supply and level of interest rates.
  • With lower interest rates, it's cheaper to borrow money, and banks are more willing to lend it.
  • For example, in the case of the United States, the Fed targets the federal funds rate, the rate at which member banks lend to one another overnight; however, the monetary policy of China is to target the exchange rate between the Chinese renminbi and a basket of foreign currencies.
  • An expansionary policy increases the size of the money supply more rapidly or decreases the interest rate.

• Fringe Benefits

  • Other fringe benefits can include employee discount programs at shops, hotels, gyms, movie theaters, and so on.
  • Benefits may also include formal or informal employee discount programs that grant workers access to specialized offerings from local and regional vendors (e.g., movies and theme park tickets, wellness programs, discounted shopping, hotels and resorts, and so on).
  • These benefit rates are typically calculated using fixed percentages that vary depending on the employee's classification and often change from year to year.

• Differential

  • Price differentiation requires market segmentation and some means to discourage discount customers from becoming resellers and, by extension, competitors.
  • The boundary set up by the marketer to keep segments separate is referred to as a rate fence.
  • For example, airlines routinely engage in price differentiation by charging high prices for customers with relatively inelastic demand (business travelers) and discount prices for tourists who have relatively elastic demand .
  • The airlines enforce the scheme by making the tickets non-transferable, thus preventing a tourist from buying a ticket at a discounted price and selling it to a business traveler (arbitrage).
  • Airlines must also prevent business travelers from directly buying discount tickets.

• Credit Operations

  • Credit, in commerce and finance, is a term used to denote transactions involving the transfer of money or other property on promise of repayment, usually at a fixed future date and at a specific interest rate .
  • A line of credit may take several forms, such as overdraft protection, demand loan, special purpose, export packing credit, term loan, discounting, purchase of commercial bills, traditional revolving credit card account, etc.
  • Long-term interest rate statistics for non-Euro countries plus Greece, Portugal, and Ireland.

• Credit Cards

  • High interest rates: Low introductory credit card rates are limited to a fixed term, usually between six and 12 months, after which a higher rate is charged.
  • Some credit cards often levy a rate of 20 to 30 percent after a payment is missed.
  • In other cases a fixed charge is levied without change to the interest rate.
  • The merchant may also pay a variable charge, called an interchange rate, for each transaction.
  • This practice is prohibited by the credit card contracts in the United States, although the contracts allow the merchants to give discounts for cash payment.