Market Interest Rate

What is Market Interest Rate

The interest rate is the rate at which interest is paid by a borrower for the use of a lenders money, it is the cost of obtaining money.

The market interest rate is simply the interest rate existing at a particular time as determined by the supply and demand of money in the money market.

Like any commodity, if demand exceeds supply the price will increase, and likewise if supply exceeds demand the price will fall.

In this case the commodity is money, and the price is the market interest rate. As the demand for money exceeds supply the market interest rate rises, as the supply of money exceeds demand the market interest rate falls.

The supply and demand for money, and therefore the money market interest rate, can be affected by many factors including, inflationary expectations, risk, availability of alternative investments, economic and political considerations, taxes and liquidity.

For further information on market rate of interest see the Wikipedia definition.

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Last modified March 23rd, 2016 by Team

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