1.8 Interest Rates & Yield Curves
Interest rates reflect the cost of capital throughout the banking system. The SIE emphasizes the hierarchy of benchmark rates and yield curve interpretations.
Key FINRA Exam Takeaways
- Federal Funds Rate: Rate commercial banks charge each other for overnight loans of federal reserves. Most volatile interest rate; market-determined.
- Discount Rate: Rate the Federal Reserve charges member banks to borrow directly from the Fed discount window. Set directly by the FRB.
- Broker Call Loan Rate: Rate banks charge broker-dealers for margin loan capital.
- Prime Rate: Rate banks charge their most creditworthy corporate borrowers.
- Yield Curve: Normal (upward sloping), Inverted (downward sloping - recession warning), Flat.
Knowledge Checkpoint • Section 1.8
Which of the following interest rates is considered the most volatile and represents the rate commercial banks charge one another for overnight reserve loans?