Reasons for different interest rate, Finance Basics

Assignment Help:

Reasons for Different Interest Rate

Interest rates may differ in different market and market segment since:

i) Size of the loan: Deposits above specific amounts into the bank might attract higher interest rates rather than smaller deposits. Therefore, large borrowers would be charged higher interest rates than small borrowers.

ii) Risks: Higher risk borrowers should pay higher rates on their borrowing to compensate lenders for greater risks included.

iii) The requirement to make a profit in re-lending: as like banks borrow for depositors and charge higher interest or like profit margin whenever they lend to borrowers.

iv) Duration of the lending : The L.T. loans will receive a higher rate of interest than shorter term loans because of the maturity risk premium.

v) International interest rates: This varies from one country to other because of differing rates of inflation and foreign currency exchange rates and government policies on interest rates.

vi) Different kinds of financial assets: Building societies should offer higher yields to depositors to attract those using bonds that have high rate of return.


Related Discussions:- Reasons for different interest rate

Determine total expenditure, Determine the amount you would be willing to p...

Determine the amount you would be willing to pay for a $1,000 par value bond paying $80 interest each year (annual) and maturing in 12 years, assuming you wanted to earn a 9% rate

WACC., The following is the existing capital structure of Company XYZ Ltd. ...

The following is the existing capital structure of Company XYZ Ltd. Ordinary shares at Shs.10 par 1,000,000 Retained 800,000 12% preference shares Shs.10 par 400,000 16% loan Shs.1

Project apparisal, challenges your likely to face when apparising a project...

challenges your likely to face when apparising a project on the implemtation stage

Basic Business Math, A new pet shop wants to apportion their investment mon...

A new pet shop wants to apportion their investment money $132,000 for advertising, building upgrades, and education in the ratio of 5:4:3. How much money does each category get app

Finance 504, What role do primary financial markets play in our economy? Wh...

What role do primary financial markets play in our economy? What role do secondary markets fill? Describe the relationship that exists between financial institutions and financial

Enumerate about the redemption yield, Enumerate about the Redemption Yield ...

Enumerate about the Redemption Yield or Yield to Maturity (YTM) Redemption yield is indicated or promised rate of return an investor would receive from a bond purchased at t

Advantages of floatation of new shares, Advantages of Floatation of New Sha...

Advantages of Floatation of New Shares 1. It facilitates the matter of securities to increase new finance, creation a company less dependent on retained earnings and banks.

Accounting rate of return method or arr, Accounting Rate of Return Method o...

Accounting Rate of Return Method or ARR This method utilizes accounting profits from financial status to assess the viability of investment proposal via diving the average inc

Significance of investment decisions, Significance of Investment Decisions ...

Significance of Investment Decisions a) Such type of decisions is importance since they will influence the company's size or like fixed assets, retained and sales earnings.

Question 7.1, Assume the managers of Fort Winston Hospital are setting the ...

Assume the managers of Fort Winston Hospital are setting the price on a new outpatient service. Here are the relevant data estimates. Variable costs $ 5.00 Annual fixed c

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd