Question

In: Finance

Give two reasons why interest expense may vary across different banks:

Give two reasons why interest expense may vary across different banks:

Solutions

Expert Solution

Answer of the above question is given below.

The following points highlight the two main causes of difference in interest rate. The causes are:

1. Differences in Risk

2. Period of Loan.

Cause # 1. Differences in Risk:

Gross interest rates differ owing to the differences in risk and inconvenience involved, cost of maintaining accounts of borrowers, toil and trouble associated with the business of lending, etc. The greater the risk and inconvenience, the higher is the rate of interest. A Kabuliwala usually charges high rate of interest compared with banks because the former sanctions loan without asking any security.

Cause # 2. Period of Loan:

Generally, longer the duration of loans the higher will be the interest rate. Loan sanctioned for a long period usually carries high interest rate since money or capital is locked for a long time. A short period loan carries a low interest rate.


Related Solutions

Give four reasons why the factor prices may not be equalized across countries. For each one,...
Give four reasons why the factor prices may not be equalized across countries. For each one, give a brief explanation and/or illustration of why it may prevent the Factor Price Equalization Theorem from holding. Note that these reasons should be within the context and the bounds of the model that we have studied, in terms its assumptions and implications, for example.
Give two reasons why you may not want your landing page to be indexed. List two...
Give two reasons why you may not want your landing page to be indexed. List two other SEO strategies for landing pages you would you consider if you were optimizing your own website? Provide a detailed response of 350 words or more.
Give TWO reasons why the interest rate for a given maturity in the commercial paper market...
Give TWO reasons why the interest rate for a given maturity in the commercial paper market is typically lower than the interest rate for the same maturity in the Eurodollar market.
Demonstrate the reasons why interest rates may differ between loans of different maturity based on expectations...
Demonstrate the reasons why interest rates may differ between loans of different maturity based on expectations theory, market segmentation theory, and liquidity preference theory?
Explain the reasons why interest rates can be different in different countries.
Explain the reasons why interest rates can be different in different countries.
Give two reasons why the Bank of Canada's (BoC) policy of buying Government bonds may be...
Give two reasons why the Bank of Canada's (BoC) policy of buying Government bonds may be beneficial. Be specific about what is at stake and how this monetary policy may be beneficial.
Give two reasons why the Bank of Canada's (BoC) policy of buying Government bonds may be...
Give two reasons why the Bank of Canada's (BoC) policy of buying Government bonds may be beneficial. Be specific about what is at stake and how this monetary policy may be beneficial. Provide two reasons why this monetary policy may be risky. What is at stake?
Why does an increase in interest rates cause stock prices to fall? Give two reasons.
Why does an increase in interest rates cause stock prices to fall? Give two reasons.
a. Based on the functions of the banking system, give reasons why governments bail out banks...
a. Based on the functions of the banking system, give reasons why governments bail out banks during an economic crisis? [Not more than one-page] b. Is the World heading for a recession? Explain the conditions under which the world can be classified as being in a recession as COVID-19 persists. Explain linking the pandemic to the various stages of a recession. [Not more than one-page]
a. Based on the functions of the banking system, give reasons why governments bail out banks...
a. Based on the functions of the banking system, give reasons why governments bail out banks during an economic crisis? b. Is the World heading for a recession? Explain the conditions under which the world can be classified as being in a recession as COVID-19 persists. Explain linking the pandemic to the various stages of a recession
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT