Define the following terms:

Prime Rate:

Discount Rate:

Reserve Ratio:

Prime Rate - the lowest rate of interest at which money may be borrowed commercially.

Discount Rate - the minimum interest rate set by the federate reserve for lending to other banks

The prime rate is the best loan rate available to anyone except other banks. The discount rate is the rate of interest which a central bank charges on its loans and advances to a commercial bank. The reserve ratio is the portion of reservable liabilities that commercial banks must hold onto, rather than lend out or invest.