prime rate

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Prime rate

The interest rate at which banks lend to their best (prime) customers. More often than not, a bank's most creditworthy customers borrow at rates below the prime rate.

Prime Rate

The best available interest rate under most circumstances. In general, only the most creditworthy customers receive the prime rate, but this is not always true. In any case, a prime rate serves as a benchmark against which other interest rates are compared.

prime rate

A short-term interest rate quoted by a commercial bank as an indication of the rate being charged on loans to its best commercial customers. Even though banks frequently charge more and sometimes less than the quoted prime rate, it is a benchmark against which other rates are measured and often keyed. For various reasons, a rising prime rate is generally considered detrimental to security prices. Also called prime.

Prime rate.

The prime rate is a benchmark for interest rates on business and consumer loans.

For example, a bank may charge you the prime rate plus two percentage points on a car loan or home equity loan.

The prime rate is determined by the federal funds rate, which is the rate banks charge each other to borrow money overnight. If banks must pay more to borrow, they raise the prime rate. If their cost drops, they drop the prime rate. The difference between the two rates is three percentage points, with the prime rate always the higher number.

The federal funds rate itself is determined by supply and demand, prompted by the actions of the Open Market Committee of the Federal Reserve to increase or decrease the money supply.

prime rate

the INTEREST RATE charged by COMMERCIAL BANKS for short-term LOANS to their most preferential customers. The prime rate is somewhat lower than other commercial borrowing rates but applies only to what may be called ‘blue-chip’ companies, generally large companies with the highest credit ratings. See BANK LOAN, BASE RATE.

prime rate

Traditionally defined as the rate of interest charged by a financial institution to its best customers. In reality, many commercial loans are quoted in terms of “prime minus one quarter,”for example, which indicates there are better rates than prime. In addition, many lenders offer rates based on the London Interbank Offered Rate (LIBOR), resulting in interest rates less than prime. Today,prime rate is often just a published rate by a financial institution,called its prime rate whether it is the lowest offered rate or not.

References in periodicals archive ?
I also experimented with specifications that included [rho][[Y.sup.*].sub.t-1] on the right-hand side of equation 1, to allow for mean reversion in the prime rate, but the estimated values of [rho] were always extremely close to zero.
In practice, the variance will not have to shift that much because the Treasury bill rate as an explanatory variable induces much of the increased volatility experienced by the prime rate. The results are robust, however, to changes in the variance levels that move them closer together, provided that the unconditional variance remains roughly the same.
Changes in the week-ending prime rate from January 4, 1975, to October 15, 1999, fall into seven categories with the relative frequencies shown in Table 1.
Because adjustment of the prime rate to market developments may take a few weeks, we are interested primarily in tracking the cumulative response of the prime rate to changes in the market interest rate.
I partition the T-bill changes into increases and decreases to test for asymmetric response of the latent prime rate, [Y.sup.*].
Since [Z.sub.t] = [[Y.sup.*].sub.t] - [Y.sub.t-1] measures the misalignment of the prime rate relative to the latent level, these restrictions on the threshold coefficients would imply that the necessary degrees of misalignment to bring about increases and decreases in the prime rate are equal to each other:
This means that the prime rate and the T-bill rates do not wander apart from each other in the long run.
Thus, the latent prime rate, [Y.sup.*], makes a one-to-one adjustment with the T-bill rate within three weeks when rates are increasing, but does not make the same adjustment until eight weeks have elapsed when rates are decreasing.