The Structure of Interest Rates and Real Interest Rates Coursework

The Structure of Interest Rates and Real Interest Rates - Coursework Example The credit card firms are not usually bound towards any form of specific limits regarding their ultimate interest rates. They can thus charge any amount they may wish to as long as they have commendable competitive rates with other existing credit card firms. Finally, the rates are often higher on credit cards so as to encourage people to make payments on time. It is based on the reasoning that; the longer you delay your repayments, the higher the interest penalties. The corporate bond’s credit ratings are often higher than those offered by the government bonds to a greater extent. This is because the corporate bonds usually have low ratings, thereby giving out an implication of a higher credit risk possibility as compared to the investment-grade bonds (Schwartzman, 1992). Therefore, they tend to offer a little bit higher rates so as to curb with the increased risks. On the other hand, the government bond’s credit ratings are often lower because they are not ultimately secured by any form of assets. They are instead backed up by the credit and full faith of the issuer. This is hence what brings out this form of disparity. Recession generally refers to a situation when there is a temporary decline with regards to the economic stability, whereby the trade and the industrial operations are totally reduced. It is generally identified by the fall in the GDP over a given successive quarters. Based on this, the interest rates tend to be reduced since it impacts on all the businesses (Guttentag & Cagan, 1969). Both small and large ventures tend to fall typically during this period. Ultimately, at such a moment the business borrowers and consumers are the ones who tend to determine the level of interests they are opting to pay for the borrowed money. There is often a greater interaction between the tax systems and interaction. This is due to a major binding factor between them that touches on the aspect of the amount of