2 Aug, 2011

Are interest rates adjusted by the central bank the same as that of commercial banks?

Question by Steven TJ: Are fascination premiums adjusted by the central bank the very same as that of commercial financial institutions?
When central financial institutions (like the Fed) regulate curiosity charges, are these the very same premiums used by Business Banking institutions? Do Business Banking institutions give the same interest premiums as the Central Financial institution?

Greatest reply:

Response by mindcrime828
The price that is adjusted by the central lender, this kind of as the Federal Reserve, is the rate used in the transfer of income in between commercial banks and that central bank. When it is adjusted, business banks will adjust their premiums accordingly. For case in point, a business bank might lend funds at 5% more than the prime price (rate arranged by the central financial institution). If the central bank raises the prime rate from lets say 2.five% to 3%, then the industrial financial institution would increase its curiosity rate from 7.5% to 8% so that they nonetheless get the identical proportion of fascination on cash lended to its clients. Thats how banking institutions make profits, from fees and fascination.

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