Chapter 27, Problem 2MCQ

To determine

The question is asking us to determine the financial services provided to commercial banks by the federal reserve from the given options.

Explanation of Solution

Check collection solutions are offered to depository organizations by the Federal Reserve Banks. Whenever a depository establishment obtains deposits of checks derived from other organizations, it has several options for sending the checks for gathering: it can deliver the checks straight to the institutions through a local clearinghouse exchange, use a correspondent institution or a Federal Reserve Bank to collect the checks, or all three.

When commercial banks have little cash on hand and need to meet reserve obligations before the end of the business day, they borrow money from the Federal Reserve System (FRS). Banks can raise themselves back above the minimum reserve requirement by borrowing from the Fed. Through the so-called discount window, a bank can obtain a loan from the government's central bank.

Because it is constantly open, borrowing through the discount window is straightforward. No lengthy paperwork or negotiations are part of the procedure. The Federal Reserve loans to banks at a greater interest rate than it would if it were to loan from some other banker, which is a drawback.

Hence, from the above, we can conclude that option E is the right answer.