The Site interst rates

Interst rates or interest rates are very important. An interst rate is the price a borrower pays for the use of money he does not own, and the return a lender receives for deferring the use of funds, by lending it to the borrower. interst rates are normally expressed as a percentage rate over the period of one year.

interst rates targets are also a vital tool of monetary policy and are used to control variables like investment, inflation, and unemployment. interst rates throughout history have been variously set either by national governments or market forces. For example, the United States federal funds rate has varied between about 1% to 19% from 1954 to 2008, while the United Kingdom base rate varied between 15 and 2% from 1989 to 2008, and Germany experienced rates close to 90% in the 1920s down to about 2% in the 2000s.

* Inflationary expectations. Most economies generally exhibit inflation, meaning a given amount of money buys fewer goods in the future than it will now. The borrower needs to compensate the lender for this.

* Alternative investments. The lender has a choice between using his money in different investments. If she chooses one, she forgoes the returns from all the others. Different investments effectively compete for funds.

* Risks of investment. There is always a risk that the borrower will go bankrupt, abscond, or otherwise default on the loan. This means that a lender generally charges a risk premium to ensure that, across his investments, he is compensated for those that fail.

* Liquidity preference. People prefer to have their resources available in a form that can immediately be exchanged, rather than a form that takes time or money to realise.

* Taxes. Because some of the gains from interest may be subject to taxes, the lender may insist on a higher rate to make up for this loss.