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Interest Rates

Interest rates are the percentage rate that a borrower will pays to a lender in order to use the lenders capital for a specific period of time. The Interest rate is known as the cost of borrowing assets. Interest rates are increased to moderate demand or decrease to stimulate demands on inflation. If the rates are set too low, this could encourage the buildup of inflationary pressure, if the rates are set too high, then demand will be lower than necessary to control inflation. Interest rates vary and are not guaranteed to stay constant.

Inflation expectations can also be estimated but comparing market rates for nominal and indexed bonds.  The central bank observes and measures inflation.  The central bank (Federal reserve) checks and makes sure that inflation expectations are having the desired effect. Inflation definition is increase in prices for products and services.  It is a result of consumer’s preference for products and service over money. Inflation has been and is still being restrained by the fall in prices for imported consumer goods, an unexpected high level of competition in domestic markets and increase cross - border labor flows.

Lenders (banks) lend the consumer (borrower) money charging them an interest rate. Banks (lenders) remain at the centre of financial system.  The credit risk is the most important risk banks face.  The central Bank monetary policy significantly affects financial stability.  Banks are normally safer because the government agency gives some guarantee to the banks.  Priority is for safety of your investments.

Interest Rate are the prices for goods and services and as such they convey real information about scarcity in the world. Interest rates is defined as a securities for which payments is made for an asset. In a single period setting, securities can be termed riskless. Interest rates is the annual percentage of the total amount borrowed. For example, if borrowed $5000 at an annual interest rate of five percent, at the end of the year you’ll over $5250.

The way the economy grows may shed light on what determines the real interest rate in the long term.  The long-term real interest rate is determined by economic fundamentals such as productivity and population growth and household spending and savings.