Question : What is the term used to describe the rate at which a central bank lends money to commercial banks in a country?
Option 1: Interest rate
Option 2: Inflation rate
Option 3: Discount rate
Option 4: Exchange rate
Correct Answer: Discount rate
Solution : The correct answer is c) Discount rate
The term used to describe the rate at which a central bank lends money to commercial banks in a country is the discount rate. The discount rate is the interest rate charged by the central bank when providing loans to commercial banks or other financial institutions.
Commercial banks can borrow funds from the central bank to meet their short-term liquidity needs or to manage their reserve requirements. The discount rate serves as a benchmark for the interest rates charged by commercial banks to their customers.
By adjusting the discount rate, the central bank can influence the cost of borrowing for commercial banks and indirectly affect the overall interest rates in the economy. Changes in the discount rate can impact lending and borrowing activities, which can have broader implications for economic growth, inflation, and monetary policy.
