What is the fee that banks charge in exchange for borrowing money called?

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12-06-2024
Business

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What is the fee that banks charge in exchange for borrowing money called?

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GinnyAnsweridn GinnyAnsweridn · Answer 1 · 2024-06-12T14:37:03-04:00

Final answer:

Banks charge a fee for borrowing money termed as the discount rate, enabling them to profit from lending at interest and funding operations.

Explanation:

The fee banks charge in exchange for borrowing money is called the discount rate. Banks charge various fees for different services including loan guarantees, foreign exchange transactions, and selling loans to investors. This practice helps banks earn profits by lending money at interest, which is above the amount they lent out. Banks also cover their overhead costs by charging higher rates to borrowers compared to what they pay to depositors.

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