Question

Define interest rate and explain the different types of interest rate.

Discuss the Fisher Equation and explain its application in the business world.

Define money, explain the different types of money and discuss the measure of money.

Do you think we are better both using smart money(cash less) in today dire time.

Define inflation, explain the different types of inflation and discuss the curse of inflation.

Which of them is or will more likely become a reality in our time of pandemic?

Define the different markets and link them to the components by explaining which ones (components) are buyers and sellers in each market.

Answer 1

Interest rate is the rate charged by the lender for the use of its assets over a period of time expressed in terms of percentage of principal amount.

Different types of interest rates are:

Most common are real and nominal interest rates, which are differentiated on the basis of inflation. Real interest rates, unlike nominal interest rates take account for the inflation and is generally lesser than nominal rate of interest.

Next is simple and compound interest rates. These rates are also common and most talked about. Simple interest is paid only one time and compound is paid either monthly, or quarterly etc.

Fisher equation states the relationship between real and nominal rate of interest. It states that nominal interest rate is the summation of real interest rates and inflation rate.

This approach is very important in business world as it helps in cost benefit analysis. Sometimes prices and interest rates are mentioned in either real or nominal terms. So this should be known to investor or consumer , or they must be informed about this, so that they make rational decision in their choices.