Anonymous asked in Business & FinanceInvesting · 1 decade ago

What does the Fed Rate refer to ?? Is the rate a long term one or of short term one??

What implications it has while determining fixed deposit rates by commercial banks?? And anything more..that is relevant ??

9 Answers

  • 1 decade ago
    Favorite Answer

    If you are referring to the rate that they meet to decide to raise or lower on a regular basis (I think you might be, but am not sure) - it is the "Fed Funds" rate - this is the rate that Federal Reserve banks charge each other to borrow money overnight - so it is a short term rate. Each member bank must have a specific amount of money in their bank (reserve) at the end of each day. If they do not, they must get it - so they will borrow from another member bank - the interest charged is the Fed Funds rate. If they can't get a loan from a member bank, the go straight to the Federal reserve and that interest charged is know as the "Discount Rate"

    The effect of raising or lowering the fed funds rate will determine how the banks will have to adjust the rates that they charge to make up the difference....keep in mind that the Fed Funds rate is a guideline - any bank can charge another bank more or less than that rate.

    Source(s): Training Specialist at a brokerage firm
  • Eva
    Lv 5
    1 decade ago

    The Fed Rate is the interest rate the Federal Reserve charges the member banks for the money the member banks borrow from the Federal reserve. If commercial banks get charged more they, in turn, have to charge more.

  • Rabbit
    Lv 7
    1 decade ago

    Since they meet periodically to consider changing it, and since it is the rate of interest for banks to borrow some float for their operations, I think you could call it a short-term rate, although sometimes the rate stays unchanged for a pretty good period of time, historically. Higher or lower rates charged by the Federal Reserve affect the velocity of money in our economy (not all economies have or need such a sophisticated tool). Low rates TEND to help money move a tad bit faster and higher rates TEND to help money slow down some. This isn't so much an oar in the water as a rudder on the boat. In some ways it sounds about as important as jumping in an elevator to help it along, but with the size and speed of our economy, plus the example it sets, it leads the economy by raising or lowering interest rates banks charge their customers. Think of it as a dance, both partners WANT to follow together in step if they want to appear graceful together. In this dance the Federal Reserve leads, banks then become the girl that follows.

  • Anonymous
    1 decade ago

    The Discount Rate is short term borrowing to member banks

    Lending is based on the prime rate as published in the Wall Street Journal and associated Treasury notes

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  • 1 decade ago

    To actually answer your question the Federal reserve is the group of central banks and all inex's do pay attention to their verbage, however they only control the prime rate, which is the index that all home equity lines of credit and most credit cards are based off of, long term bonds (10 year) determine mortgage rates on the 30 year notes and short term rates are determined by the 2 year US Treasury, hope this helps

    Source(s): Work in the finance industry and follow this stuff very closely.
  • 1 decade ago

    the fed funds rate is the rate a bank charges another for overnight loans needed to meet reserve requirements. It is also the basis for many banks in determining their prime lending rate and cd rates

    Source(s): Business teacher
  • Erika
    Lv 4
    3 years ago

    one 3 hundred and sixty 5 days is 365 days for long term capital earnings era - purchase date to disposal date (no longer something to do with calender or financial 3 hundred and sixty 5 days) If capital earnings is after keeping of protection for >365 days - NO TAX If earnings is accrued interior 365 days - short term capital helpful factors tax = 10% of earnings over & above STT. Any dividend gained from listed business enterprise is exept from Tax as additionally all dividends gained from MFs.

  • Chris
    Lv 4
    1 decade ago

    CJ is correct. The FR is an illegal operation, and immoral.

    Scott K sounds like a brainwashed tool of the establishment.

  • CJ
    Lv 6
    1 decade ago

    The "federal reserve" is not federal, and it has no reserve. It prints money out of thin air, then charges TAXPAYERS interest to "loan" it to us.

    It is a scam, and it is illegal and unconstitutional (only Congress is supposed to be able to print money, FREELY).

    It is run by international banking "elite" that want to rule the world. They have Bush, Clinton, and most Dems and Repubs in their back pockets.

    Run them out.

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