Discount window

Examples of Discount window in the following topics:

• The Discount Rate

  • The Fed makes loans to depository institutions and charges different discount rates for each of discount windows.
  • The discount rate is the interest rate charged to commercial banks and other depository institutions on loans they receive from the Fed's lending facility, the discount window.
  • The Fed offers three discount window programs to depository institutions: primary credit, secondary credit, and seasonal credit, each with its own interest rate.
  • All discount window loans are fully secured.
  • (Because primary credit is the Federal Reserve's main discount window program, the Federal Reserve, at times, uses the term "discount rate" to mean the primary credit rate. ) The discount rate on secondary credit is above the rate on primary credit.

• The Creation of the Federal Reserve

  • The Fed has three main policy tools: setting reserve requirements, operating the discount window and other credit facilities, and conducting open-market operations.
  • The Fed extends these loans through the discount window and charges what is called the discount rate.
  • The discount rate is set by the Fed, and is important because it radiates throughout the economy: if it becomes more expensive to borrow at the discount window, interest rates will rise and borrowing will become more expensive economy-wide.
  • In this way, the Fed can use the discount window to affect interest rates and the money supply .
  • The diagram shows how the central bank can increase the money supply by lending money through the discount window or purchasing bonds (open market operations).

• The Effect of Expansionary Monetary Policy

  • Another way to enact an expansionary monetary policy is to increase the amount of discount window lending.
  • The discount window allows eligible institutions to borrow money from the central bank, usually on a short-term basis, to meet temporary shortages of liquidity caused by internal or external disruptions.
  • Decreasing the rate charged at the discount window, the discount rate, will not only encourage more discount window lending, but will put downward pressure on other interest rates.

• The Effect of Restrictive Monetary Policy

  • Another way to enact a contractionary monetary policy is to decrease the amount of discount window lending.
  • The discount window allows eligible institutions to borrow money from the central bank, usually on a short-term basis, to meet temporary shortages of liquidity caused by internal or external disruptions

• Discount Policy

  • Fed's second monetary policy tool is the discount policy.
  • Each Fed district bank provides loans, known as the "discount window."
  • For example, the Fed raises the discount rate.
  • Banks can abuse the discount window.
  • For example, the Fed raises the discount rate.

• NPV Profiles

  • The NPV Profile graphs the relationship between NPV and discount rates.
  • The NPV calculation involves discounting all cash flows to the present based on an assumed discount rate.
  • When the discount rate is large, there are larger differences between PV and FV (present and future value) for each cash flow than when the discount rate is small.
  • The independent variable is the discount rate and the dependent is the NPV.
  • It is the discount rate at which the NPV is equal to zero.

• Replacement Projects

  • These cash flows form the basis for the project's value, usually after implementing a method of discounted cash flow analysis.
  • Discounted cash flow analysis should be undertaken for both the existing project and the potential replacement project.

• Discounting

  • An example would be a discount on snowmobiles during the summer.
  • The intention of such discounts is to spread demand over the year.
  • For example, a 2% discount on bills paid within 10 days is a cash discount.
  • Trade discounts, also called functional discounts, are payments to distribution channel members for performing some function.
  • Trade discounts are often combined to include a series of functions, for example 20/12/5 could indicate a 20% discount for warehousing the product, an additional 12% discount for shipping the product, and an additional 5% discount for keeping the shelves stocked.

• Trade Allowances

  • For instance, hairdressers can go to the manufacturer to get a discount for buying in bulk.
  • Such a discount might also be used to gain shelf space or a preferred position in the store.
  • Trade discounts are often combined to include a series of functions, for example 20/12/5 could indicate a 20% discount for warehousing the product, an additional 12% discount for shipping the product, and an additional 5% discount for keeping the shelves stocked with the product.
  • The larger the purchase, the larger the discount.
  • Hairdressers can go to the manufacturer to get a discount for buying in bulk.

• Chicago School of Architecture

  • The "Chicago window" originated in this school.
  • It is a three-part window consisting of a large fixed center panel flanked by two smaller double-hung sash windows.
  • The arrangement of windows on the facade typically creates a grid pattern, with some projecting out from the facade forming bay windows.
  • These windows were often deployed in bays, known as oriel windows, that projected out over the street.
  • This steel frame building displays both variations of the Chicago window, its facade is dominated by the window area (limiting decorative embellishments) and it is capped with a cornice, elements which are all typical of the Chicago School.