When a member bank of the Federal Reserve System borrows from the Federal Reserve Bank in its district, it will pay the:

• A. Discount rate.
• B. Prime rate.
• C. Call rate.
• D. Federal funds rate.

Answer: (A)

Borrowing from the Federal Reserve Bank in its district happens through the discount window, so the bank pays the discount rate. This rate is charged by the Fed on loans to depository institutions that need temporary reserves. It’s different from the federal funds rate, which is the rate banks charge each other for overnight reserve loans in the interbank market, not a loan from the Fed. It also differs from the prime rate—what banks charge their top corporate customers—and from the call rate, which applies to broker-dealer or interbank call loans, not to Fed lending.