U25292:ECONOMICS ASSIGNMENT SAMPLE 2023
1. Introduction
In the economy, the loan is an important part as it is very significant in the financial system of the industries. If any business organisation or any person wants to borrow some financial resources from the banks or want to invest for good returns, the rate of interest term is attached with all the financial activities. Here the elaboration of this term is presented in the context of the economy.
2. Understanding of Rate of Interest
Common sense indicates that the term ‘rate of interest is the amount that is charged from the borrower of a loan or in the case of investment the amount that is given to the investor as the interest. According to Parkin et al. (2012), the term rate of interest indicates the additional charge that has to be paid by the borrower to the lender or bank.
On the other hand, if anyone invests a certain amount of financial resources in any organisation, the rate which the investor can earn additionally based on the basic investment amount is known as the rate of interest (Wynne & Zhang, 2018). The calculation of the interest is based on the mathematical formula and there are different types of interest calculation like simple interest, compound interest.
The determination of the rate of interest is based on the behaviour of the borrower according to the previous history of the finance condition of that particular person or organisation.
As opined by Parkin et al. (2012), the behaviour of borrowers feel more attracted to the lower rate of interest as they have to pay small amount of additional money to the lender within a certain period. On the contrary, in the case of investment, an investor wants to draw a high rate of interest.
3. Elaboration of Rate of Interest
Rate of interest is an important factor in the economy of any industry and it helps to get an idea from the side of borrowers that how much amount they have to pay back additionally with the principal amount to a lender or bank. As per Parkin et al. (2012), the people have to know every factor related to the economy as this is one of the essential parts of any business or work.
In the case of loan there is a limit of the time within which period the borrower has to pay back the total principal amount of the loan along with the complete interest amount (Abdullaevich, 2020). For example, if a person takes out a loan for two years, the interest rate has to be calculated on the principal amount in every month of the two years. The time period for the interest calculation can be varied from case to case and the time interval for the generation of interest rate can be varied accordingly.
The formula of the calculation for the rate of interest is, R = I*100/P*T, where R symbolises the rate of interest, I stands for interest amount that is multiplied by 100 and P is for the principal amount, T is for the time period (Han & Bai, 2018). As opined by Case et al. (2017), high rate of interest is beneficial for the lender as the borrower have to return more money to them, which is a type of business. This indicates that the low rate of interest attracts entrepreneurs mainly to start a business with some financial backup.
4. Conclusion
The discussion based on the rate of interest has concluded that the concept of interest rate is very essential if any person goes to borrow some money from any lender or bank. This is also important for the investors, who invest their monetary resources for a purpose and aim to get a good return from that. The discussion has indicated that the rate of interest depends on the borrowing nature, demand, and the history of the financial activities of the person or organisation related to the process.
References
Books
Case, K. E., Fair, R. C., & Oster, S. M. (2017). Principles of Economics 12th Global ed.London, United Kingdom: Pearson.
Parkin, M., Powell, M., & Matthews, K. (2012). Essential economics. London, United Kingdom: Pearson.
Journals
Abdullaevich, M. M. (2020). The Basic Concepts of Investment and Its Importance. JournalNX, 6(06), 193-196. https://www.neliti.com/publications/336729/the-basic-concepts-of-investment-and-its-importance
Han, J., & Bai, J. (2018, August). Design and Application of General Calculation Model for Real Interest Rate of Loan and Installment. In 2018 International Conference on Management, Economics, Education and Social Sciences (MEESS 2018) (pp. 478-482). Atlantis Press. https://www.atlantis-press.com/article/25900569.pdf
Wynne, M. A., & Zhang, R. (2018). Estimating the natural rate of interest in an open economy. Empirical Economics, 55(3), 1291-1318. https://link.springer.com/article/10.1007/s00181-017-1315-5
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