The interest
rate is the amount that expressed interest rate, which imposed by the
lender to the borrower for the use of assets. Is recorded in the normal
position on an annual basis, and knows the annual interest rate. Could
be borrowed assets in the form of cash or goods FMCG or substantial
assets such as vehicles or buildings.
From a consumer perspective, is expressed as an interest rate of annual returns when this ratio is acquired from a savings account or certificates of deposit or investment, for example. When the interest rate is paid, compared to a credit card payment or a mortgage or a loan, expressed as an annual interest rate.
How to calculate the interest rate
Interest rates are imposed by creditors as compensation for losses resulting from the use of assets. In the case of lending money, the creditor could have invested the money instead of lending. When a large lending out, the assumption is that the creditor was able to achieve through the income that asset in the event decided to use it himself.
The interest rate is calculated by dividing the amount of interest on the value of the principal amount. Often change as a result of interest rates and inflation policies of the Federal Reserve Bank. For example, if the creditor (such as a bank) to impose $ 90 a year on a loan of $ 1000, then the interest rate is 90/1000 * 100% = 9%.
Use the simple interest formula:
Simple interest = P (principal amount) × I (annual interest rate) × N (number of years).
The use of compound interest equation:
Example: borrowing $ 1,000 at an annual interest rate of 6% for a period of 8 months means that you will pay 40.70 $ utility.
Compound interest higher, because the rate of interest may be calculated on the principal amount on a monthly basis + interest earned from previous months. For shorter time periods, have an equal interest rate calculated both ways, but with increasing the loan period, the disparity between the two types of interest grows.
Who determines the interest rate?
In the countries that used the central banking model, interest rates are determined by the central bank.
In the first step of determining the interest rate, the economic observers in the establishment of government policies help to ensure price stability and liquidity of the state. This is verified political routinely to ensure that the money supply in the country is not very large (which cause an increase in prices) nor too little (resulting in lower prices).
Due to the fact that commercial banks are usually the first financial institutions that provide money to the economy, they are the main tools used by the central bank to manipulate the supply of money. By adjusting the interest rates on the money they lend or borrow by commercial banks, the central bank also able to supply money to the end user (individuals and companies).
In the event of financial policy-makers decided to reduce the money supply, will affect the interest rate that would automatically affect the movement of currencies, they will increase interest rates, making it more attractive deposit money and reduces the process of borrowing from the central bank. On the other hand, if managers wanted to increase the supply of money, they will do to reduce the interest rate, making the process of borrowing and spending more attractive. In the U.S., interest rates are determined by "the Federal Open Market Committee" which consists of 7 conservative members of the Board of Directors of the Federal Reserve Bank, and 5 of the heads of the Federal Reserve Bank. Meets the Federal Open Market Committee 8 times a year to determine the short-term orientation of fiscal policy and interest rate.
Conclusion
Follow the news and analysis of the actions of central banks (which is available in: fundamental analysis of currencies), you should have a high priority among traders in Forex because with its fiscal policy required for each area, moving exchange rates. With the movement of currency exchange rates, traders have the ability to inflate profits, not only through the accrued interest of the trades, but also of the actual volatility in the market. It is possible for analysis and careful research can help to avoid rolling sudden interest rate movements and the reaction towards them properly when they occur in the end.
From a consumer perspective, is expressed as an interest rate of annual returns when this ratio is acquired from a savings account or certificates of deposit or investment, for example. When the interest rate is paid, compared to a credit card payment or a mortgage or a loan, expressed as an annual interest rate.
How to calculate the interest rate
Interest rates are imposed by creditors as compensation for losses resulting from the use of assets. In the case of lending money, the creditor could have invested the money instead of lending. When a large lending out, the assumption is that the creditor was able to achieve through the income that asset in the event decided to use it himself.
The interest rate is calculated by dividing the amount of interest on the value of the principal amount. Often change as a result of interest rates and inflation policies of the Federal Reserve Bank. For example, if the creditor (such as a bank) to impose $ 90 a year on a loan of $ 1000, then the interest rate is 90/1000 * 100% = 9%.
Use the simple interest formula:
Simple interest = P (principal amount) × I (annual interest rate) × N (number of years).
The use of compound interest equation:
Example: borrowing $ 1,000 at an annual interest rate of 6% for a period of 8 months means that you will pay 40.70 $ utility.
Compound interest higher, because the rate of interest may be calculated on the principal amount on a monthly basis + interest earned from previous months. For shorter time periods, have an equal interest rate calculated both ways, but with increasing the loan period, the disparity between the two types of interest grows.
Who determines the interest rate?
In the countries that used the central banking model, interest rates are determined by the central bank.
In the first step of determining the interest rate, the economic observers in the establishment of government policies help to ensure price stability and liquidity of the state. This is verified political routinely to ensure that the money supply in the country is not very large (which cause an increase in prices) nor too little (resulting in lower prices).
Due to the fact that commercial banks are usually the first financial institutions that provide money to the economy, they are the main tools used by the central bank to manipulate the supply of money. By adjusting the interest rates on the money they lend or borrow by commercial banks, the central bank also able to supply money to the end user (individuals and companies).
In the event of financial policy-makers decided to reduce the money supply, will affect the interest rate that would automatically affect the movement of currencies, they will increase interest rates, making it more attractive deposit money and reduces the process of borrowing from the central bank. On the other hand, if managers wanted to increase the supply of money, they will do to reduce the interest rate, making the process of borrowing and spending more attractive. In the U.S., interest rates are determined by "the Federal Open Market Committee" which consists of 7 conservative members of the Board of Directors of the Federal Reserve Bank, and 5 of the heads of the Federal Reserve Bank. Meets the Federal Open Market Committee 8 times a year to determine the short-term orientation of fiscal policy and interest rate.
Conclusion
Follow the news and analysis of the actions of central banks (which is available in: fundamental analysis of currencies), you should have a high priority among traders in Forex because with its fiscal policy required for each area, moving exchange rates. With the movement of currency exchange rates, traders have the ability to inflate profits, not only through the accrued interest of the trades, but also of the actual volatility in the market. It is possible for analysis and careful research can help to avoid rolling sudden interest rate movements and the reaction towards them properly when they occur in the end.
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