Question

Bank Of The North (B of N) gave out large loans to many of their customers. After reviewing the bank’s records, B of N sees that the bank is now below the Federal Reserve’s minimum reserve requirement. A member bank, Helper Bank, has excess reserves. B Of N borrows enough money from Helper Bank to reach their reserve requirement. The rate of interest that B of N will pay to Helper Bank for the loan is the ________ rate.

Answer 1

Answer: federal fund rate

Explanation:

Federal funds rate is simply defined as the interest rate which banks and credit unions which are also.refeeed to as depository institutions lend the balance that they've in their reserves balances to other depository institutions. It should be noted that no collateral is collected in this case.

The reserve balance is the fund which the central bank in a country makes compulsory for the commercial banks to have in order to maintain their reserve requirement. In this case, the banks thatt have surplus balances lend the balances to others that need the extra balance to make up theirs or need larger balances.

Federal fund rate is the rate of interest on which one bank gives short term or overnight loan to other banks.

here B of N will give the interest to Helper Bank as per the Federal Fund rate