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Interest rates and the "Fed" - How it affects everyone

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What happens to customers (borrowers and savers) investors, and Banks profits as interest rates increase and decrease?

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Solution Summary

The solution includes a good discussion about how and when rate changes even affect loans down at the consumer level. It explains how the 'fed' is able to influence banks to adjust their lending rates to all borrowers - either up or down. There is a section about T-bill rates and reserve requirements too.

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When the 'fed' raises interest rates, the banks who borrow from the fed, must pay a higher rate of interest for their loans. They in turn figure out how much the prime rate needs to go up in order for their banks to maintain the profit spread.

The prime rate is the rate at which banks lend to their very best customers, and these are commercial loans, not mortgage-backed loans. After ...

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