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Discount Rate

The Discount Rate is the interest rate charged by the Federal Reserve to member banks for loans. The member bank must provide collateral for the loan, which is usually in the form of government securities or eligible paper. This type of borrowing is generally limited, and is done only to meet short-term liquidity requirements. The Federal Open Market Committee is responsible for adjustments to the Discount Rate, which is often raised or lowered in conjunction with the more widely used Federal Funds Rate.