In: Finance
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)
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