Question

Which of the following statements is correct? A. The Federal funds rate is the rate banks charge their most creditworthy customers. B. The prime rate involves longer, more risky loans than the Federal funds rate. C. The discount rate is the rate banks charge one another on overnight loans. D. The Federal funds rate is derived based on the prime rate.

Answer 1

Answer: Option (B) is correct.

Explanation:

Correct Option: The prime rate involves longer, more risky loans than the Federal funds rate.

It was seen that prime rate is higher than the federal funds rate because it involves more risk, longer term loans than one day or overnight loans occurred between the commercial banks.

Both federal rate and prime rate keep tracking the each others rate.

Remaining all the statements are not correct in the question.