The percent or interest rate is the interest charged by the lender for the use of borrowed funds. The settlement period of the percent rate is different and is set separately in the contract, usually it is a month, quarter or year.
Types of interest rates
The interest rate can be:
- interest rates of the Central Bank,
- interest rates of loan operations of credit institutions with non-bank clients,
- interest rates of securities yield (for example, bonds)
The interest rate can be real, i.e. cleared of inflation, or nominal, which takes into account the size of inflation. There are also fixed rates that do not change throughout the contract, and floating interest rates that are reviewed once in a period. For example, the LIBOR interest rate (London Interbank Offer Rate).
The interest rate level set by the Central Bank is an important indicator of the country’s economic stability, as it is an instrument of monetary policy. The higher the interest rate, the higher the investment interest of foreign investors and the greater their contributions to the national economy. For the nation economy, a high interest rate is a reduction in loan amounts, which does not always have a good effect on development, but slows down the inflation’s growth.