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Write the difference between discount rate and interest rate.
The major differences between discount rate and interest rate are as follows −
Discount Rate
Federal reserve banks charges to depository institution/commercial banks on its overnight loans.
Central banks decide the rate.
It is not determined by market rate of interest.
It determines present value of future cash flows.
It focuses on investors view.
The demand and supply has no effect on discount rate.
Interest Rate
It is an amount charged by lender to a borrower for use of assets.
Commercial banks decide the rate.
It depends on market rate of interest, creditworthiness etc.
It can’t determine present value.
It focuses on lender’s view.
The demand and supply has effect on interest rate.
Updated on: 27-Jul-2020
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