Discount rate, also known as threshold interest rate, refers to the interest calculated at a certain interest rate when commercial banks handle bill discount business. This interest rate is the discount rate, which is the price at which the bill discounters get funds.

Often used for bill discount. When all the bills receivable of an enterprise need capital turnover before maturity, they can apply to the bank for discount or loan. After the bank agrees, from the date of bill discount or loan to the date of bill maturity, interest will be deducted from the face value of the bill at a certain interest rate to pay the balance. The discount rate is mainly determined by the financial market interest rate.

Extended data

Two meanings of discount rate

First kind

Refers to the interest rate charged by the national central bank to financial institutions when they make short-term financing to the central bank. Discount rate will affect the interest rate charged by financial institutions to customers and indirectly affect other financial markets. It is one of the monetary policy tools of a country.

However, the central bank usually has restrictions on this kind of borrowing, so when financial institutions need short-term funds, they will generally seek other channels first. In addition to the discount rate, the interest rates set by central banks also include overnight lending rates, of which the overnight lending rate in the United States is called the federal funds rate.

The second type

Refers to the interest rate for converting future assets into present value. Generally, the zero-risk interest rate at that time is used as the discount rate, but it is not absolute.

For example, if the discount rate is 10%, then next year's 100 yuan is equivalent to 100/ (1+10%) = 90.909090 yuan, and next year is1.

Reference source Baidu Encyclopedia-discount rate