QQuestionBusiness Management
QuestionBusiness Management
The interest rate charged by banks to their best customers is the:
A. federal funds rate
B. demand rate
C. prime rate
D. discount rate
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Answer
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Step 1:I'll solve this step by step:
Step 2:: Understand the Key Banking Terminology
The question is asking about the specific interest rate that banks charge their most creditworthy customers. This requires identifying the standard banking terminology for preferred lending rates.
Step 3:: Analyze the Options
Let's examine each option: - Federal funds rate: The rate banks charge each other for overnight loans - Demand rate: Not a standard banking term - Prime rate: The interest rate banks charge their most creditworthy corporate customers - Discount rate: The rate the Federal Reserve charges banks for short-term loans
Step 4:: Identify the Correct Answer
The prime rate is specifically defined as the interest rate banks charge their most creditworthy customers. This matches exactly with the description in the question.
Step 5:: Verify the Definition
The prime rate is typically used as a benchmark for many other interest rates, including: - Business loans - Credit card rates - Some adjustable-rate mortgages
Final Answer
Prime rate Key Insight: The prime rate is the standard reference rate for banks' most reliable customers, serving as a baseline for many other lending products.
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