Interest Rates

1
Interest Rates

• There are many interest rates in the economy.
  Loans vary by their riskiness and by their
  maturity. Riskier loans and loans for longer
  maturities typically have higher interest rates.

2
Nominal Vs. Real Interest Rates

• Nominal interest rates Nominal interest rates
  are the rates actually charged in the market.

• Real interest rates Real interest rates are
  nominal rates that are adjusted for inflation by
  subtracting the inflation rate.

3
Financial Intermediaries

• Commercial Banks
• Savings and Loans (S Ls)
• Credit Unions
• Insurance Companies
• Money Market Mutual Funds and
• Others

4
Financial Intermediation Process

• Savers deposit their savings in financial
  intemediaries
• Savers receive securities from financial
  intermediaries
• Investors borrow from fianancial intermediaries
• Investors give notes to financial intermediaries.