Importance of interest rates, Finance Basics

Importance of Interest Rates

These are of a specifically relevance to a finance manager since:

i) They measure the cost of borrowing.

ii) Interest rates in a country influence the foreign swap rate of the country's currency.

iii) Interest rates act like a guide to the sort of return such firm's shareholders might want therefore changes in interest rates will affect rates for an approved creditworthy borrower.

Interest may be

a) Base lending rates - Banks lend to individual and small firms at instant margins above the base lending rates. Therefore it is the rates for an approved creditworthy borrower.

b) Inter-Bank Lending rates

For large loans to big firms, such banks will set interest rates at a margin under base rates rather than above base lending rates.

The Treasury Bills Rates - Risk Free

  • The rates at much central bank sell treasury bills to the market.
  • Treasury bills are utilized to raise, short-term funds for the government. Securities questing with the government to raise long term funds such are called gilt-edged securities.
  • Why in different markets segments interest rates differ
Posted Date: 1/30/2013 3:18:56 AM | Location : United States

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