Question

Which of the following statements is true? The prime rate is often the same as the...


Which of the following statements is true?
The prime rate is often the same as the discount rate.
The prime rate is higher than the federal funds rate.
The federal funds rate is higher than the prime rate.
The federal funds rate and the prime rate are often the same.
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Answer #1

Option 2 Prime rate is higher than federal funds rate

Since Q2 of 1994, the rule of thumb for US Prime rate is the following:

U.S. Prime Rate = (The Fed Funds Target Rate + 3)

Hence prime rate is usually higher than Federal Funds rate set by US Fed rate.

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