MARKET INTEREST RATE

Presented by : SANA ABEDI

Market Interest Rate

The prevailing rate of interest offered on cash deposits, determined by demand and supply of deposits and based on the duration (the longer the duration, the higher the rate) and amount (the higher the amount, the higher the rate) of deposits.

 The market interest rate is offered most commonly on deposits in banks. The market interest rate is different for different investment vehicles. The market interest rate is always changing where as the stated interest rate does not change. The market interest rate keep constantly changing due to global events, perceptions about inflation, and many other factors which occur both inside and outside of the corporation.

KIBOR
KIBOR stands for Karachi Inter Bank Offer Rate The KIBOR was launched in 2001 and in 2004 its scope and operation was expanded. It is used by the banks in order to lend the money with each others and with their customers. The Habib Bank Ltd (HBL) has become the first commercial bank which has linked its Karachi Inter-Bank Offered Rate (KIBOR) related financing with State Bank of Pakistan.

 This is the minimum interest rate (inflation adjusted) which the banks have to charge from their customers. . This rate is inflation adjusted rate and then banks by adding 2 or 3% in KIBOR rate charge their customers for their profit.

KIBOR 1 WEEK 2 WEEK 1 MONTH 3 MONTH 6 MONTH 9 MONTH 1 YEAR 2 YEARS 3 YEARS

16-May-2012

BID/OFFER 11.52 /12.02 11.53 /12.03 11.53 /12.03 11.70 /11.95 11.77 /12.02 11.82 /12.32 11.87 /12.37 11.94 /12.44 12.02 /12.52

Function Of Interest Rate

One word: PROFIT. The function of interest rates are tied to risk. A bank, lender, loan shark, etc... set their interest rates based on the perceived risk inherent with the loan. That is why personal loans and credit cards carry a higher interest rate than car or boat loans which are still higher than property loans.

 When Market Interest Rates Increase

Market interest rates are likely to increase when bond investors believe that inflation will occur. As a result, bond investors will demand to earn higher interest rates. The investors fear that when their bond investment matures, they will be repaid with dollars of significantly less purchasing power.

 When Market Interest Rates Decrease

Market interest rates are likely to decrease when there is a slowdown in economic activity. In other words, the loss of purchasing power due to inflation is reduced and therefore the risk of owning a bond is reduced.

The following terms are often used to mean market interest rate: Effective Interest Rate Yield To Maturity Discount Rate Desired Rate

THANK YOU