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Unformatted text preview: fund rate was lowered than discount rate. (Wiki, 2008) FOMCs introduced a new kind of discount window, called primary credit, which was similar to the discount window as before but had higher interest rate than federal fund rate and was given for short term, as a backup for liquidity. The FOMCs target federal fund rate remained unchanged. (Press Release, Federal Reserve Bank, October 31, 2002) The Discount rate currently acts as ceiling for the federal fund rate firstly because it has eliminated the incentive for institutions to borrow money at lower interest rate and lending it at higher rates. Secondly, now due to higher discount rates (primary credit) institutions go to Feds discount window only when they are actually in trouble, not for incentives....
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This note was uploaded on 03/17/2008 for the course ESL 015 taught by Professor Borgiamelissael during the Spring '08 term at Pennsylvania State University, University Park.
- Spring '08