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The Prime rate is the
interest rate that banks charge each other
when they borrow money amongst themselves as well
as the rate that they charge their most favored
commercial borrowers who are seeking
prime rate loans.
The prime rate is also one of the most frequently
used
index rates for determining the new base
interest
floor for variable interest rate
credit cards, loans, mortgages and other types
of credit.
Normally the Prime Rate is set somewhere around 3
percentage points above the federal funds rate
which is set by the Federal Open Market Committee
(FOMC), a part of the U.S. Federal Reserve system.
The Prime Rate that is published in the Wall
Street Journal, called the WSJ Rate, is the one
that most lenders refer to when they are talking
about the Prime Rate.
When the Prime Rate rises,
interest rates go up. When the Prime Rate
falls, so do interest rates. As a rule of thumb,
whenever 23 out of 30 of the nations' largest
banks change their individual
prime rates, the WSJ rate is updated with what
is called the "composite prime rate" which
reflects the average prime rate being charged by
each of the banks. |
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