Interest rates

• What is meant by an interest rate?

  Cost of borrowing or reward for saving
• How is the interest rate expressed?

  As a percentage
• Who sets the base rate of interest?

  Central bank
• What does a better credit history imply for interest rates?

  Lower interest rates for borrowers
• How does risk influence interest rates?

  Higher risk leads to higher interest rates
• What happens to interest rates during inflation?

  Interest rates increase
• What is the effect of a recession on interest rates?

  Interest rates decrease
• How does the duration of loans affect interest rates?

  Longer loans lead to higher rates
• Why do different financial products have varying interest rates?

  Due to the type of investment
• What does the time value of money refer to?

  Opportunity cost for lenders/savers
• How do high interest rates affect saving behavior?

  Encourage saving due to higher returns
• What is the impact of low interest rates on saving?

  Discourage saving due to lower returns
• How do high interest rates affect borrowing costs?

  Increase borrowing costs
• What is the effect of low interest rates on borrowing?

  Reduce borrowing costs
• How do high interest rates influence consumer spending?

  Reduce disposable income and spending
• What happens to disposable income when interest rates are low?

  Increase in disposable income
• How do high interest rates affect producers' saving behavior?

  Encourage saving surplus cash
• What is the impact of low interest rates on producers' saving?

  Discourage saving; funds may be reinvested
• How do high interest rates affect borrowing for producers?

  Increase costs of loans
• What is the effect of low interest rates on producers' borrowing?

  Lower costs of loans
• How do high interest rates influence investment attractiveness?

  Reduce attractiveness due to higher costs
• What happens to business growth when interest rates are low?

  Encourage investment and promote growth
• What is the formula to calculate interest on savings?

  Interest = Principal × Rate × Time
• If the principal is $1000, the rate is 5%, and the time is 2 years, what is the interest?

  $100 \text{ dollars}$
• What are the key areas affected by changes in interest rates for consumers?

  • Saving
  • Borrowing
  • Spending
• What are the key areas affected by changes in interest rates for producers?

  • Saving
  • Borrowing
  • Investment