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The Federal Reserve System Discount Rate Essay

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Updated: Sep 18th, 2021

According to the provided data, there could be made several forecasts on the activity of the Citybank and Federal Reserve System of the USA.

First, the Citybank income may be forecasted, as there is exact data provided in the report:

  • In 2004 – 17045
  • in 2005 – 24,589
  • in 2006 – 25538
  • The difference 2004/2005 composed 7544, 2005/2006 – 949.
  • (7544 + 949)/2 = 4246.5

Thus, the approximate forecast on the issues of the income 2007 is that it will be $4246.5 higher than in 2006 (25 538+4 246.5=29 784.5)

To calculate the discount rate of the FRS, it is necessary to analyze the rates of the Federal Funds. The decline of the rates started in 1982, so, for better understanding, and mo9re accurate calculation, it is necessary to use the data after 1982.

  • 1983 – 8.3%
  • 1985 – 8.1%
  • 1987 – 6.3%
  • 1989 – 8.2%
  • 1991 – 6%
  • 1993 – 2.5%
  • 1995 – 6%
  • 1997 – 4.8%
  • 1999 – 4.4%
  • 2001 – 6.3%
  • 2003 – 1.5%
  • 2005 – 5%
  • 2006 – 5.2% (CNNMoney.com, 2007)
  • 2007 (estimated) – 5.58%

Formula:

(8.3%+8.1%+6.3%+8.2%+6%+2.5%+6%+4.8%+4.4%+6.3%+1.5%+5%+5.2%)/13 = 5.85%

The interest rates of the FRS are the following

  • Till the 2001 the rates composed 0.50%
  • In 2001 they were raised up to 6.25% and in 2002 lowered to 1.00%. 2003 – 1.75%
  • 2004 – the FRS raised the target interest rate, and it composed 5.25%
  • August 2006, the rate 0.25% increased (5.50%)
  • August 2007 – 5.25%

Thus, the forecast for the 2008 may be the following (5.75%+(-5.25%)+0.75%+4.50%+0.25%+(-0.25))/6 = 0.95

So, the approximate forecast, is that the rate will 0.95% increase (5.25+0.95=6.2)

References

  1. Paul R. La Monica , “” Web.
  2. Mark Rodgers 2006 “The Student Loan Corporation Announces Year-End and Fourth Quarter Earnings” The Student Loan Corporation.
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IvyPanda. (2021) 'The Federal Reserve System Discount Rate'. 18 September.

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