What is the 'Discount Rate'?

The discount rate can refer to either the interest rate that the Federal Reserve charges banks for short term loans or the rate used to discount future cash flows in discounted cash flow (DCF) analysis. ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

Term of the Day | Words to Know Discount Rate Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal Reserve Bank through the discount window loan process, and second, the discount rate refers to the interest rate used in discounted cash flow (DCF) analysis to determine the present value of future cash flows. Read More » Related to "Discount Rate" The Federal Reserve Chairman's Responsibilities The chairman of the Federal Reserve Board has many duties including testifying before Congress and as acting chair of the FOMC. Read More » Prime Rate vs. Discount Rate: What's the Difference? Prime is the Fed's base rate for consumer loans, to which banks add a margin. When banks lend to each other, they use the discount rate. Read More » How Interest Rate Cuts Affect Consumers Traders rejoice when the Fed drops the rate, but is it good news for all? Find out here. Read More » SPONSORED BY INVESCO The Complete Guide to ETFs ETFs are becoming increasingly popular and soaring to new heights among investors. Invesco's insights can help you determine if these investment vehicles are right for you. Learn More » Related Definitions Interbank Rate The interbank rate is the interest charged on short-term loans between banks. Banks constantly swap money to ensure liquidity or put spare cash to use. Read More » Federal Reserve System The Federal Reserve System is the central bank of the United States. It was founded by the U.S. Congress in 1913 to provide the nation with a safe, flexible and stable monetary and financial system. Read More » Monetary Policy Actions of a central bank or other agencies that determine the size and rate of growth of the money supply, which will affect interest rates. Read More » Discounted Cash Flow Discounted cash flow (DCF) is a valuation method used to estimate the attractiveness of an investment opportunity. Read More » CONNECT WITH INVESTOPEDIA Email sent to: mondemand.forex@blogger.com To update your newsletter preferences or unsubscribe, click here. 114 West 41st St, floor 8 New York NY 10036 © 2020, Investopedia, LLC, All Rights Reserved | Privacy Policy