Question

1. Rank the following interest rates from lowest to the highest and identify it is a source (S) or use (U) of capital. If it is both a source and use of capital, then state both (B)

   • - Federal Funds Rate (FFR)

   • - LIBOR

   • - Interest on Reserves (IOR)

   • - Discount Rate (DR)

   • - Prime Rate

   • - Risk Free Rate

   • - Reverse Repurchase Agreements (Repos)

Answer 1

Lowest to the highest

1.Prime Rate - U

Prime rate is the rate of commercial banks for overnight lending to each other. it is for the use of capital.

2.Discount rate (DR)- S

The rate set by the federal reserve for lending to other banks and it is usually a source of capital.

3. Libor - B

Libor is the basic rate of lending which is used by banks for reference in setting the rates.

4.Federal Funds rate FFR - B

It is a rate at which depository institutions lend reserve balances to other institutions on collateral basis.

5. Reverse Repurchase Agreements (Repos) - B

It is a rate at which Federal bank borrow money from the commercial bank. So, it is both source and use of capital.

6. Risk free rate - U

7. Interest on reserve (IOR) -U