Answer:
The correct answer is number (1): Federal Reserve Banks lend to commercial banks.
Explanation:
The Discount Rate is the interest rate a central bank charges to private banks on short-term loans. Banks also borrow each other for short-term needs, with central banks such as the U.S. Federal Reserve (Fed) usually operating as a last-resort lender. As a consequence, it tends to have its discount rate somewhere above that which is charged by private banks.
