A. The difference between the price at which commercial bank sells an asset to the central bank and the price it agrees to buy it back can be expressed as an annualized percentage of the selling price and this is called the refinancing rate
B. Commercial banks may borrow from and lend to each other and the interest rate at which they do this is called the refinancing rate
C. In the UK the refinancing rate is known as the repo rate and in the USA it is referred to as the discount rate.
D. If the central bank has bought some assets from a commercial bank with an agreement that the commercial bank will buy them back at a later date, then this would be called a repo
E. If the central bank raises its refinancing rate then the commercial banks will try to reduce their lending and so reduce the need to borrow from the central bank
Correct Answer: Commercial banks may borrow from and lend to each other and the interest rate at which they do this is called the refinancing rate ✔
Last Updated: June 18, 2019