This question is not directly related to forex but should be valid here. I've recently been taking a closer look at how interest rates work. I've figured out what the fed fund rate, discount rate, and prime rate all are, but I'm a little unclear as to how they relate to each other. With the recent subprime problems and subsequent declines in many markets, I've been reading that 'market rates are well above base rates'. What does this mean? Right now,
fed fund: 4.75%
discount: 5.25%
prime: 7.75%
I found somewhere on the net that the prime is usually 3% over the fed fund rate. Is this always true? Do they mean the spread has widened when 'market rates are well above base rates'? In a recent BoE statement (http://www.forexfactory.com/news.php?do=news&id=45693) they say exactly that. What do they mean? How can this data be interpreted in the currency markets?
I know this is a pretty big question, so if you don't want to answer in full can someone at least point me to a resource where I can find the answers? Thanks in advance!
fed fund: 4.75%
discount: 5.25%
prime: 7.75%
I found somewhere on the net that the prime is usually 3% over the fed fund rate. Is this always true? Do they mean the spread has widened when 'market rates are well above base rates'? In a recent BoE statement (http://www.forexfactory.com/news.php?do=news&id=45693) they say exactly that. What do they mean? How can this data be interpreted in the currency markets?
I know this is a pretty big question, so if you don't want to answer in full can someone at least point me to a resource where I can find the answers? Thanks in advance!