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One word: PROFIT.
That's the short answer. The long answer is the function of interest rates are tied to risk. A bank, lender, loan shark, etc... set their interest rates based on the perceived risk inherent with the loan. That is why personal loans and credit cards carry a higher interest rate than car or boat loans which are still higher than property loans. Personal loans are only a promise to pay with no collateral to fall back on while a home or building is the collateral for a property loan; there is an avenue of recourse for the bank. The more opportunity the lender has to lose money, the higher the interest rate. The other side of this has to do with investing and the risk/reward scenario. Various investments have different rates of return as the risk is different in each case. Stocks are risky and can deliver a great return or even negative return. Government bonds deliver a guaranteed return with no risk but the return is usually quite low.
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∙ 12y ago
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Is the price at which bonds sell determined by the interaction of stated rates of interest and market rates of interest?
Yes, the price at which bonds sell are determined by the interaction of stated rates of interest and market rates of interest.
Do interest rates rise when inflation declines?
Interest rates are simply the price of money. When inflation declines, interest rates typically decline also.
How do interest rates affect corporate bond value?
When interest rates rise, bonds lose value; when interest rates fall, bonds become more attractive.
What is the relationship between demand for money and interest rates?
as interest rates increase, demand for money increases.
What is the significance of interest Rates for an economy?
the significance is that the government profit from specific interest rates in an economy
When we talk of interest rates are these the borrowing rates or the lending rates?
When we talk of interest rates , we are talking of the interest rate on the total amount of money borrowed by a person.
Is prime rates the same as interest rates?
Prime rates are the interest rates most banks charge their customers for loans while interest rates are the rates charged to borrow money and come in many forms.
What is the function of a money market savings account?
The function of a money market savings account is to earn a higher interest on your balance. Interest is based on current rates in the money markets. A minimum balance is usually required for investment.
Is the price at which bonds sell determined by the interaction of stated rates of interest and market rates of interest?
Yes, the price at which bonds sell are determined by the interaction of stated rates of interest and market rates of interest.
How beneficial are CD interest rates?
What is beneficial about CD interest rates is that they are constant for the specified period of time. Sometimes interest rates can go up or down but CD interest rates would stay the same.
Do interest rates rise when inflation declines?
Interest rates are simply the price of money. When inflation declines, interest rates typically decline also.
What is the benefit of fixed deposit interest rates?
Fixed deposit interest rates is a guaranteed interest rate for the entire term of an investment. They allow for the customer to earn high interest rates.
How do financial institutions calculate interest rates?
Financial institutions base their interest rates on fluctuation of today's market. If the market is doing well then interest rates are high. If the market is down, interest rates goes down along with it.
How do interest rates affect corporate bond value?
When interest rates rise, bonds lose value; when interest rates fall, bonds become more attractive.
What is the relationship between demand for money and interest rates?
as interest rates increase, demand for money increases.
Are CD interest rates generally higher than simple savings interest rates?
true
How does bankruptcy affect interest rates on loans and credit cards?
It cause interest rates to rise.
