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CramPuppy - Free Revision Notes » Igcse » Economics » Interest

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Interest: reward for parting with liquidity

The interest rate is decided by the demand for and supply of loans.

The higher the risk, the higher the interest. They charge more to discourage the person actually borrow money.

Factors affecting interest rate for borrowers:

1. Duration of loan: long term is riskier, so the interest is higher

2. Credit worthiness: guarantee makes the interest lower

Factors affecting Interest Rate for Savers

1. Minimum amount kept in deposit: the higher the amount, the higher the interest

2. The amount of notice required for withdrawal: more notice, more interest

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by: Admin
Total views: 575
Word Count: 572
Date: Sun, 21 May 2006 Time: 12:00 AM
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