The rate that Bank One borrows a Fed Fund rate from Bank Two for overnight reserves...

The rate that Bank One borrows a Fed Fund rate from Bank Two for overnight reserves is also called ___.

A. A repo rate

B. A reverse repo rate

C. Brokers’ call money rate

D. A banker’s acceptance rate

Expert Solution

B is correct as Reverse repo rate is the rate that Bank One borrows a Fed Fund rate from Bank Two for overnight reserves. This is the rate at which the central bank of a country (Reserve Bank of India in case of India) borrows money from commercial banks within the country. It is a monetary policy instrument which can be used to control the money supply in the country.

A is incorrect as Repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds. Repo rate is used by monetary authorities to control inflation.

C is incorrect as the Brokers Callmoney rate is the interest rate on a type of short-term loan that banks give to brokers who in turn lend the money to investors to fund margin accounts.

D is incorrect as a Bankers acceptance rates are the market rates at which banker's acceptances trade, and are determined by current values relative to face values. They represent the return received if an acceptance were purchased today at the market price and held until the payment date.

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