Bank Discount Rate

The discount rate can mean

  • an interest rate a central bank charges depository institutions that borrow reserves from it, for example for the use of theFederal Reserve’s discount window.
  • the same as interest rate; the term “discount” does not refer to the common meaning of the word, but to the meaning in computations of present value, e.g. net present value or discounted cash flow
  • the annual effective discount rate, which is the annual interest divided by the capital including that interest; this rate is lower than the interest rate; it corresponds to using the value after a year as the nominal value, and seeing the initial value as the nominal value minus a discount; it is used for Treasury Bills and similar financial instruments
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