Open Market rate can be defined as the rate of the interest that is paid by an individual or a business entity on any debt or securities that are traded in the open market. The open market rate of the interest related to the debt is changed on the basis or supply and demand within the open market. The examples of open market can be given as the interest rate of debt instruments such as commercial paper and bank acceptance. Both the commercial paper and bank acceptance is considered as debt instrument with open market rate.
There are a number of different reserves that have interest rates that are settled by the federal government. Open Market rate is different from these reserves as it is not similar to the discount rate. Discount rates are the official rates that are set by the Federal Government like many other reserve rates. The official rates and the discount rates that are settled by the Federal Government are used to apply the rate of interest to any kind of the debt instrument that is being traded in the secondary market. One thing must be kept in mind that the commercial loans issued by the banks are also a kind of debt instruments however these commercial loans don’t come under the category of open market rate. The reason behind bank commercial loans not categorized as open market rate is that they are largely issued by the Federal Government and are also managed under their umbrella.
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