Intrest rate fluctuation

Jun 28th, 2015
Studypool Tutor
Abilene Christian University
Price: $25 USD

Tutor description

Lending and borrowing are the two main operations of the financial intermediries and financial intermedieries are the major component of the financial system of any country.Theory of financial intermedieries aurged that banks and other financial institutions mainly take the funds from the surplus units of the system and lend it to the deficit units(Allen & Sontemero).In lieu of it the surplus units demand compensation for the deffered use of the funds and the deficit unit ,who now have the funds from the surplus units would pay compensation for the redily use of these funds.This compensation is actually the opputunity cost of the money and this cost is known to be a intrest rate (Faboozi & Peterson).

Word Count: 588
Showing Page: 1/12
INTEREST RATE TERM STRUCTURE The interest rate term structure is the relationbetween the interest rate and the time tomaturity of the debt for a given borrower in agiven currency. In India, interest rate decisions are taken by theReserve Bank of India's Central Board ofDirectors. The official interest rate is thebenchmark repurchase rate. ,From 2000 until2010, India's average interest rate was 5.82percent reaching an historical high of 14.50percent in August of 2000 and a record low of3.25 percent in April of 2009.LAST 10 YR DATA OF INTEREST RATESTRUCTURE 2000-2010 ( IN %)REPO RATE Whenever the banks have any shortage offunds they can borrow it from RBI. Reporate is the rate at which our banks borrowrupees from RBI. A reduction in the repo rate will help banksto get money at a cheaper rate. When the repo rate increases, borrowingfrom RBI becomes more expensive.REVERSE REPO RATE Reverse Repo rate is the rate at which Reserve Bankof India (RBI) borrows money from banks. Banks are always happy to lend money to RBI sincetheir money are in safe hands with a good interest. An increase in Reverse repo rate can cause the banksto transfer more funds to RBI due to this attractiveinterest rates. It can cause the money to be drawn outof the banking system. Due to this fine tuning of RBI using its tools of CRR,Bank Rate, Repo Rate and Reverse Repo rate ourbanks adjust their lending or investment rates forcommon man.Ca

Review from student

Studypool Student
" This tutor is great! "
Ask your homework questions. Receive quality answers!

Type your question here (or upload an image)

1821 tutors are online

Brown University





1271 Tutors

California Institute of Technology




2131 Tutors

Carnegie Mellon University




982 Tutors

Columbia University





1256 Tutors

Dartmouth University





2113 Tutors

Emory University





2279 Tutors

Harvard University





599 Tutors

Massachusetts Institute of Technology



2319 Tutors

New York University





1645 Tutors

Notre Dam University





1911 Tutors

Oklahoma University





2122 Tutors

Pennsylvania State University





932 Tutors

Princeton University





1211 Tutors

Stanford University





983 Tutors

University of California





1282 Tutors

Oxford University





123 Tutors

Yale University





2325 Tutors