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Interest rates are the “price of money”. If a borrower wants to spend more than their actual cash on hand, they need to find someone to lend them the necessary funds. A lender compares keeping their money for their own spending or investing in an alternative investment.
Both the lender and borrower look at the interest payment on the loaned amount in percentage terms. A $5 interest payment on a $100 loan that is outstanding for one year is called a 5% interest rate (5 divided by 100).
A basic understanding of interest rates is important to both corporate and personal finance. The general level of interest rates reflect economic growth, monetary policy and fiscal policy. The interest rate charged to a borrower reflects the risk that the particular borrower might default on the loan.
The movement up and down in interest rates impounds many different factors and is very difficult to predict.