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Interest Rates

Interest Rates

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Interest Rates

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  1. Interest Rates There are many interest rates in the economy. Loans vary by their riskiness and by their maturity. Riskier loans and loans for longer maturities typically have higher interest rates.

  2. Nominal interest rates:Nominal interest rates are the rates actually charged in the market. Real interest rates:Real interest rates are nominal rates that are adjusted for inflation by subtracting the inflation rate. Nominal Vs. Real Interest Rates

  3. Financial Intermediaries • Commercial Banks; • Savings and Loans (S & Ls); • Credit Unions; • Insurance Companies; • Money Market Mutual Funds; and • Others

  4. Financial Intermediation Process • Savers deposit their savings in financial intemediaries; • Savers receive securities from financial intermediaries; • Investors borrow from fianancial intermediaries; • Investors give notes to financial intermediaries.