Interest Rates On The Uk Economy Essay

2040 Words Dec 16th, 2014 9 Pages
Interest rates are the amount charged and expressed as a percentage by a lender to a borrower for the use of assets. Interest rates are typically determined on a annual basis, known as the annual percentage rate. Examples of assets borrowed could include, cash, consumer goods, large assets, such as a vehicle or building. Interest rates are determined by the bank of England this is because retail banks are usually the first financial institutions to expose money to the economy, they are the primary instruments used by the central bank (bank of England) to manipulate the money supply. There are many ways in which Interest rates effect the UK economy examples of this are price of borrowing, mortgage interest payments, the value of the pound and government debt interest payments. Overall the incentive is to either encourage people to save or to spend.
The role of the financial sector is banks and other financial intuitions which are typically known as the financial intermediaries, these channel funds from the depositors to borrowers which furthermore determine the rate of interests. Correspondingly to this they act as a mechanism whereby the supply of funds is matched to the demand for funds. In this process they provide five important services. These are bought together in the money market, the money market is the market for short term debt instruments for example government bills in which financial institutions are active participants. Central banks are important in this…

Related Documents