DEFINITION of 'Open-Market Rate'

Rate of interest that is paid on any debt security that trades in the open market. Open-market rates respond directly to changes in supply and demand. Interest rates for such debt instruments as commercial paper and banker's acceptances are open-market rates.

BREAKING DOWN 'Open-Market Rate'

Open-market rates differ from the discount rate and other official rates that are set by the Federal Reserve. These rates apply to any debt instrument that trades in the secondary market. Bank commercial-loan rates do not fall into this category, as they are largely determined by Fed policy.

RELATED TERMS
  1. Trade Resumption

    To resume trading activities after having been shut down (halted) ...
  2. Open-Market Transaction

    An order placed by an insider, after all appropriate documentation ...
  3. Banker's Acceptance - BA

    A short-term debt instrument issued by a firm that is guaranteed ...
  4. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, ...
  5. Variable Rate Demand Note - VRDN

    A debt instrument that represents borrowed funds that are payable ...
  6. Key Rate

    The specific interest rate that determines bank lending rates ...
Related Articles
  1. Trading

    How The Federal Reserve Manages Money Supply

    The Fed's three main tools are manipulating reserve requirements, changing the discount rate, and open-market operations.
  2. Investing

    Introduction To Commercial Paper

    Commercial paper is a short-term instrument that can be a viable alternative for retail fixed-income investors looking for a better rate of return on their money.
  3. Investing

    What's a Debt Security?

    A debt security is a financial instrument issued by a company (usually a publicly traded corporation) and sold to an investor.
  4. Insights

    When Will Interest Rates Rise?

    Find out if -- and why -- the Federal Reserve will keep raising interest rates and what that might mean for savers, investors and the entire economy.
  5. Investing

    Commercial Paper

    Commercial paper is a short-term debt security issued by financial companies and large corporations. The corporation promises the buyer a return, or profit, for making the loan. The return is ...
  6. Investing

    How Interest Rates Affect Mutual Funds

    Find out how changing interest rates impact mutual funds, including bond and money market funds, and how higher rates can discourage investors.
  7. Insights

    The Impact of the Fed Interest Rate Hike

    The Federal Reserve recently raised benchmark interest rates. With much attention on the Fed's policy, here's what happens when the Fed hikes rates.
  8. Personal Finance

    How Interest Rate Cuts Affect Consumers

    Traders rejoice when the Fed drops the rate, but is it good news for all? Find out here.
  9. Personal Finance

    How the Federal Reserve Affects Your Mortgage

    The Federal Reserve can impact the cost of funds for banks and consequently for mortgage borrowers when maintaining economic stability.
  10. Retirement

    Should Retirees Pin Their Hopes on a Rate Hike?

    The Fed’s plan to start raising rates later this year might help, but it's unlikely to be a panacea for fixed-income investors.
RELATED FAQS
  1. What is the difference between open-market and closed-market transactions?

    Insiders often are blessed with owning a significant portion of a company's shares. This shared ownership is often in the ... Read Answer >>
  2. How does monetary policy impact the cost of debt?

    Learn how monetary policy impacts the cost of debt. This economics lesson explains how the Federal Reserve influences interest ... Read Answer >>
  3. What are the most important interest rates?

    Learn about the most important interest rates in the economy; the Federal funds rate and discount rate are set by the Federal ... Read Answer >>
  4. What is an antitrust law?

    Antitrust laws - also referred to as "competition laws" - are statutes developed by the U.S. Government to protect consumers ... Read Answer >>
  5. How accurate is the forward rate in predicting interest rates?

    Find out why forward rates are inconsistent and limited predictors of actual future interest rates, primarily because the ... Read Answer >>
  6. Why is marketing important to a company in the utilities sector?

    Find out what a banker's acceptance is, how it works, and why it should be considered a safe and liquid money market instrument. Read Answer >>
Hot Definitions
  1. Benchmark

    A standard against which the performance of a security, mutual fund or investment manager can be measured.
  2. Mobile Wallet

    Mobile wallet is a virtual wallet that stores payment card information on a mobile device.
  3. Leverage

    1. The use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment. ...
  4. Trumponomics

    Trumponomics is a term for the economic policies of President Donald Trump.
  5. Universal Health Care Coverage

    An organized healthcare system that provides healthcare benefits to all persons in a specified region. Many countries, such ...
  6. Davos World Economic Forum

    The annual meeting of the World Economic Forum hosted at Davos—a small ski town in Switzerland—in January each year is among ...
Trading Center