This study aims to examine the factors that determine interest rate spread irs of. An empirical study of several industrial countries author. Determinants of market interest rate management notes. Pdf many studies have looked in to the determinants of interest rate in developed countries. The objective of this paper is to examine the determinants of interest rates in sri lanka. Due to the increasing rate of inflation, the rba will then decide to implement the monetary policy to reduce its level of inflation by tightening the monetary policy that is by increasing the interest rates viney, 2012. Determinants of interest rate, gross interest, pure interest, return on capital, nominal interest rate,liquidity preference theory,yield curve, expectations theory, market segmentation theory. Determinants of interest rates free download as powerpoint presentation. Determinants of interest rate 1 money supply yield curve. Determinants of interest rates on time deposits and. Thus, one of the objectives of the rba is to maintain an inflation rate target rate of 2% to 3%. The additional return above the risk free nominal interest rate which is. For more information on the source of this book, or why it is available for free.
The market interest rate is the function of many factors including the real cost of money, inflation, risk,etc. The study was therefore aimed to establish the influence of interest rates determinants and performance of commercial banks in kenya. Econ 116 en the determination of interest rates the. Technically, such models help us understand the determinants of interest rates in general but tell us. While greater competition among mfis in many countries has lowered interest rates, a recent study by financial access initiative shows the opposite to be true in uganda. In another document in question, demirguckunt and huizinga 1999 present international evidence on the determinants of the interest rate spread but this time related to the profitability of banks. Or, on the other side of the coin, it is the compensation for the service and risk of lending money. As a result, microfinance providers need to raise nominal interest rates to ensure the real value of funds remains the same over time determinant 8. Pdf the main focus of this research study will be to determine the main. Exchange arrangements and exchange restrictions 2009, with freefloating. This is interest rate determination, chapter 7 from the book policy and theory.
This study aims to examine the factors that determine interest rate spread. How should we think about the determination of interest rates in. We study the determinants of interest rates on both savings accounts and time deposits in the netherlands during the period 20032014. Real interest rates, japan, germany, united kingdom, france, united states, macroeconomic policy, monetary policy, equilibria, wicksellian framework, equilibrium, government debt. An interest rate is the amount of interest due per period, as a proportion of the amount lent. The determination of interest rates and the exchange rate in the. The interest rate conditions on these deposits are communicated to depositors. Assessing the determinants of interest rate transmission through. The steadystate model describes the determinants of the longterm choices made by profit maximising firms and overlapping generations of consumers, given the. Many studies have looked in to the determinants of interest rate in developed countries. Determinants of interest rate passthrough international monetary.
Functions of the interest rate in the economy 2003 by the mcgrawhill companies, inc. This technical note covers real and nominal interest rates, risk premia, an islm. This study note is intended to provide an overview of what interest rates represent, how they. The factors affecting interest rate are called determinants of interest rate. Determinants of interest rates loanable funds interest. The market interest rate is different for different investment vehicles, though all are determined by the supply and demand for credit. While the necessity of charging interest on microcredit has been widely accepted, there seems to be plenty of disagreement over the level of interest rate charged by microfinance providers because the factors that go into these calculations are not well known. Interest rate determination in china international journal of. Determinants of interest rate 1 free download as powerpoint presentation.
Interest rate and exchange rate determination in the model combines the essential elements of mainstream economic theory with a healthy respect for the short. An important distinction must be made between nominal and real interest rates. Research objectives the general objective was to investigate the influence of interest rates determinants on the performance of commercial banks in kenya. Khan 1985 in order to i nquire into the determinants of interest rates in sri lanka. Subscribe to this free journal for more curated articles on this topic. The model captures both external and domestic factors that are likely to i nfluence the domestic interest rate.
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