Question

In November, the interest on reserves was 0.15% or 15 basis points, and the discount rate was 25 basis points. If the equilibrium federal funds rate was 10 basis points, what interest rate would prevail in the federal funds market between banks? 

Answer 1

0.15% = 15 points

100% = ?

100* 15/0.15 = 10,000 points

discount rate 0.25%

100% =10,000 points

0.4% = ?

0.004 * 10000

40 bias points