The discount rate is the interest rate used to determine the present value of future cash flows. It helps investors and businesses assess how much future money is worth today. For example, if you expect to receive $100 in a year, the discount rate helps you figure out how much that $100 is worth right now, considering factors like inflation and risk. In finance, the discount rate is also used by central banks, like the Federal Reserve, to influence economic activity. By raising or lowering the discount rate, these banks can encourage or discourage borrowing and spending, impacting overall economic growth.