Discount rate is a rate of interest charged by Federal Reserve Bank, for loans to member banks. It is also known as cost of capital or cost of funds.

Key Aspects:

• This rate is an important channel for influencing monetary policy.
• The rate is also very important to the bond and stock markets, as it provides a clue to interest rate trends and future Federal Reserve policy.
• It is often used as a benchmark for other institutions charging interest on loans, credit cards and other debts.