SIE: Order Of Interest Rates

Order of Interest Rates

The exam may ask you to order four important types of interest rates reported in the media from lowest to highest or vice versa.

Recall that the federal funds rate is the rate at which banks borrow overnight funds from each other. This is the rate that the Federal Reserve alters through open market operations. The discount rate is the rate the Fed charges banks to directly borrow funds from it.

The broker call rate is the interest rate that banks charge broker-dealers to meet their customers’ margin requirements. The broker call rate is typically lower than the prime rate, but not as low as the discount or the federal funds rates. The margin rate that the broker charges the customer is typically the broker call rate plus some additional percentage or