INTERST RATE

INTEREST RATES

Presentation

Start

1.

Advantage and disavantage of paiyng interest

7.

What is interest

History of interest rates

2.

8.

Interest on macroeconomics

3.

Types of interest

In this presentation

Formula and calculation

4.

Impacts on saving

9.

Common application

5.

Importance of interest

10.

Advantages and disvantages of collecting interest

6.

11.

Conclusion

WHAT IS INTEREST RATES?

sometimes interest represents a cost, because whoever obtains a loan will have to pay interest and it will be a cost, and sometimes it represents a gain, because whoever lends money to the third parties will receives interest, and it will be a gain.

Interest rates

"Interst is the monetary charge for the privilege of borrowing money"

HISTORY OF INTEREST RATES

HISTORY OF INTEREST RATES

The practice of charging interest on loans became widely accepted during the Renaissance era when mobility, trade, and commerce started to flourish.

In medieval times, the charging of interest was considered morally reproachable and dubious.

TYPES OF INTEREST RATE

Floating Interest

Fixed Interest

• Fixed interest is calculated by using a fixed rate of interest on a loan

• Floating interest is where the rate used to calculate interest payments fluctuates over time.

Compounding Interest

Simple interest

• Simple Interest is a bank’s rate of interest for charging its customers. The calculation is basic and generally expressed as the multiplication of principal, interest rate, and the number of periods.

• It is based on two key elements: the interest of the loan and the principal amount. Here banks will first apply the interest amount on the loan balance, and whatever balance is pending will use the same amount to calculate the subsequent year’s interest payment.

FORMULA AND CALCULATION

COMPOUND INTEREST

SIMPLE INTEREST

CI=P(1 + r/n)^nt - P

SI= P*R*T

r= rate of interst n= frequency or no. of times the interst is compounded annually. t= is the overal tenure

P=Principal is the amount that it's initially borrowed from the bank or invested R=Rate of interst T=Time, is the duration that the amount is given to someone

Compound Interest

You have invested $1000 in a bank where your amount gets compounded daily at 5% annual interest. Then what is the compound interst that you get after 10 years?

P=$1000 r=5%=5/100=0,05 t=10 since the amount is coumponded daily: n=365

C.I=P(1+r/n)^nt-P C.I=1000(1+0,05/365)365*10-1000 C.I=$648,66

COMMON APPLICATION OF INTEREST

COMMON APPLICATION OF INTEREST

Credit cards

Mortgages

Credit card interest is the cost of borrowing money from a lender or credit card company.

A mortgage consists of placing a property as collateral to get a loan with low interest rates and long terms.

COMMON APPLICATION OF INTEREST

Invoices

Saving accounts

Additional money the client owes you over and above the original invoice amount if they pay late. The interest rate is a percentage of the unpaid balance that accumulates every month the invoice remains unpaid

Often a positive type of interest for most consumers. savings accounts earn monthly interest assessments.

ADVANTAGES AND DISADVANTAGES OF COLECTING INTEREST

Advantages of collecting interest

• May provide source of cash flow if interest payments are collected monthly/frequently;

• Is a more efficient use of capital instead of not loaning it out.

Disavantages of collecting interest

• May attract negative attention in some situations depending on the borrower, rate of interest, and circumstance

ADVANTAGES AND DISADVANTAGES OF PAIYNG INTEREST

DISAVANTAGES

ADVANTAGES

1. Anticipation of consumption generates interest incidence: Buying a product in advance seems good, but this benefit costs the payment of interest for the cost of this anticipation.

1. Anticipation of consumption: With credit, we can purchase a product or service, even without having the value at the time of purchase.

2.Risk of excessive indebtedness: The thoughtless and excessive use of credit can cause over-idebt, which can seriously compromise the financial well-being of a borrower.

2. Emergency aid: In unexpected crisis situations, credit can be used as a reserve of money to resolve unforeseen events

INTEREST RATE IN MACROECONIMCS

In macroeconomics, Interest rates affect economic activity broadly, which is the reason why they are normally the main instrument of the monetary policies conducted by central banks.

Changes in interest rates will:

• Affect the assests price;
• Affect the cost of investing
• Affect the imports and exports

impact of interst on saving

Impact of interest on saving

Generally, when interest rates are high, people will spend less and save more, as the cost of borrowing money to buy items such as houses and cars increases, whereas the return on savings deposits is higher. When interest rates are low, the process is the opposite.

THE IMPORTANCE OF INTEREST RATE

IMPORTANCE

It may not seem like it, but the interest rate has a crucial role in our lives, since a change in this rate may have a positive or negative impact on the behavior of economic agents, thus affecting the normal course of the economy.

Therefore, it is extremely necessary to pay attention to such changes and to study in depth and adequately any influence of the interest rate on the economy.

CONCLUSION

In way of conclusion, the interest rate is an important element in economic sector, for example in macroeconomics it is capable of modifying the purchasing power of economic agents.

THANK YOU

"VOLENTE NIHIL DIFFICILE"