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Utulu Hope
March 26, 2021
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Lending money at no cost is not practical because of the time value of money. Interest rates are necessary costs that help to keep an economy stable.
Introduction Interest Rates
Credit plays a very significant role in the economy. It helps to ensure that an economy's financial cycle is always in motion. It is also a means through which individuals can raise capital and pay it back later. Businesses also make use of credit for the purchase of goods and services. When the purchased goods are sold, profits are made which are then used to repay the debt. In fact, anybody for various reasons can take a loan and pay it back over time.
For credit to be easily accessible by those who need it, some kind of incentive is usually involved for creditors. Most times, the incentive is in the form of interest which creditors charge borrowers. In this write-up, we will discuss everything you need to know about interest rates.
Interest Rates Explained
Interest rate is a commonly used phrase used in the financial world. However, what is interest? Interest is a financial incentive owed by a lender to the borrower. It is the cost incurred by a borrower for borrowing money. For instance, if Jackson decides to lend Jonathan some amount of money, say $5000, they may have an agreement that the refund would be at 5% interest. This means that Jonathan will have to repay the $5000 plus an extra 5% of the borrowed sum. That is, he will pay back $5250 to Jackson.
Having understood what interest means, we can easily deduce what interest rate is. Interest rate is simply the proportion of a loan charged as interest with respect to time. Therefore, if Jackson's interest rate is 5% per year, Jonathan would have to pay the sum of $5250 in the first year.
Simple and Compound Interest
Interest rates are termed either simple or compound. Using the earlier illustration, simple interest maintains the same rate for subsequent years, that is, 5% interest every year ($5250 yearly). In contrast, compound interest charges interest on the initial principal and accumulated interests from earlier intervals. For example, 5% of the $5250 from the first year gives $262.5. Hence, if the loan is for two years at 5% compound interest, $262.5 will be the interest for the second year rather than $250.
Types Of Interest Rates
- Nominal interest rate: This refers to the interest rate that applies to the specific amount borrowed. It does not take inflation or any other fees into consideration. If the nominal rate of a given loan is 10%, the borrower will pay exactly 10% of the loan amount as interest. Another name for the nominal interest rate is the coupon rate. It is so-called because it is always inscribed on bondholders' redeemed coupons.
- Real interest rate: This is very different from the nominal interest rate. This type of interest rate is dependent on inflation. If an annual compound rate is 10% of its principal rate and the rate of inflation is 8%, then the real interest rate is 2%.
- Effective interest rate: This type is a compounding form of the interest rate. For instance, if a contract pays 6% yearly and compounds semi-annually, an investor who puts $3000 in this bond will receive $90 of interest payments after the first six months ($3000 x 0.03) and $92.7 of interest after the next six months ($3090 x 0.03). This means that the investor received $182.7 interest that year. Hence, for this illustration, the nominal rate is 6%, and the effective rate is 6.09% ($3000 x 6.09).
The Economic Significance of Interest Rates
Now, let us explain the critical role interest rates play in an economy. In commercial banks, all transactions revolve around borrowing and lending. Anyone who deposits money is a lender. As banks pay other people, you receive interest because your deposits are, in principle, lent to other people. You also pay interest to the bank each time you borrow money.
Although banks charge and pay interest, they do not have the flexibility to set these rates. Only Central Banks have the right to do so. By increasing or decreasing interest rates, a Central Bank can regulate the economy. If the interest rates are increased, more interest will accrue to you if the bank lends out your money. The downside is the higher cost incurred by those who want to borrow. Therefore, when interest rates are high, it is expensive to borrow but profitable to lend.
The reverse is the case when interest rates are reduced. It is less profitable to lend but attractive to borrow. Generally, interest rates affect consumer behavior. The purpose of lowering interest rates may be to increase the spending rate of the economy at a time when it has dropped. When individuals and businesses see that the interest rates are cheap, the level at which they borrow is increased.
A struggling economy will benefit from lowered interest rates, but it will lead to inflation. When there are more funds in circulation due to reduced interest, there is a higher spending rate. The demand for goods is increased, and it will suppress supply. Inflation eventually sets in to balance the economy.
Another natural way to restore balance is to increase interest rates. When this is done, there is fewer amounts of funds in circulation. Consumers begin to panic and repay their debts. At this point, there is much to gain when your money is loaned out. Consumers, therefore, save in banks so they can earn interest. However, there will be less demand for goods again which will induce poor growth of the economy.
Interest Rates Can Be Negative
It may sound surprising, but a Central Bank can adjust interest rates in such a way that you pay to either lend money or save it in a bank. In the unusual scenario a borrower receives interest rather than pay interest. Negative interest rates may be used by Central Banks as one of the tools of last resort, to revive an economy in a very drastic state.
When individuals realize that they need to pay money to save in banks or lend to others, they decide to keep the money themselves during an economic decline. The idea here is that borrowing is incentivized to stimulate further economic activity. While this measure is a very negative approach, many experts believe it is the last resort to help a crumbling economy.
Closing Remarks
The concept of interest rate is straightforward to understand. The interest rate policy influences the economy of a country as well as individual behavior. Central banks play a key role in setting these rates to ensure an economic balance. High-interest rates may increase the yield of lenders but slow the growth of the economy. In contrast, low interest rates may reduce the yield of lenders but increase the growth of the economy.
Don’t forget to download the BSC News mobile application on iOS and Android to keep up with all the latest news for Binance Smart Chain and crypto! Check out the DeFi Direct Linktree for all the access links!
For those looking for tools and strategies regarding safety and crypto education, be sure to check out the Tutorials, Cryptonomics Explainers, and Trading Tool Kits from BSC News.
This is a paid Ask Me Anything (AMA), BSC.News does not endorse and is not responsible for or liable for any content, accuracy, quality, advertising, products, or other materials on this page. The project team has purchased this advertisement AMA for $2000 Readers should do their own research before taking any actions related to the company. BSC.News is not responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods, or services mentioned in the AMA.
Overall it is vital to proceed with caution when purchasing tokens that have just been listed. For those who have not already read our articles on safety in the BSC it is crucial to reference the following items, HERE and HERE.
This is a paid press release, BSC.News does not endorse and is not responsible for or liable for any content, accuracy, quality, advertising, products, or other materials on this page. The project team has purchased this advertisement article for $2500. Readers should do their own research before taking any actions related to the company. BSC.News is not responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods, or services mentioned in the press release.
This is a paid press release, BSC.News does not endorse and is not responsible for or liable for any content, accuracy, quality, advertising, products, or other materials on this page. The project team has purchased this advertisement article for $2500. Readers should do their own research before taking any actions related to the company. BSC.News is not responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods, or services mentioned in the press release.
Overall it is vital to proceed with caution when purchasing tokens that have just been listed. For those who have not already read our articles on safety in the BSC it is crucial to reference the following items, HERE and HERE.
This is a paid press release, BSC.News does not endorse and is not responsible for or liable for any content, accuracy, quality, advertising, products, or other materials on this page. The project team has purchased this advertisement article for $2000. Readers should do their own research before taking any actions related to the company. BSC.News is not responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods, or services mentioned in the press release.
This is a paid press release, BSC.News does not endorse and is not responsible for or liable for any content, accuracy, quality, advertising, products, or other materials on this page. The project team has purchased this advertisement article for $2000. Readers should do their own research before taking any actions related to the company. BSC.News is not responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods, or services mentioned in the press release.
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January 28, 2022
Socios.com Sues Argentine Football Federation Over Binance Deal
Web3 crypto competitors have finally come head-to-head after a year long expansion into worldwide sports.
Socios Sues AFA
As Binance announced its partnership with the Argentinian FA in the past week, the news was not met with plaudits by Socios. Socios has filed a complaint against the footballing organization.
Judge María José Gigy Traynor of the Argentinian National Commercial Court ordered the AFA to honor three contracts previously agreed with Socios. The contracts in question were acquired and reported on by Coindesk’s Andrés Engler on January 27. In a statement to CoinDesk, the AFA had recognized the injunction but underlined its intention to appeal.
The AFA then began picking up on its own frustrations claiming:
- The Argentina token was not sufficiently promoted
- Several issues in the use of images of the national team and league
Socios has refuted these claims, notifying CoinDesk that they have made all outstanding payments to the AFA and have no obligations for further payment. A likely instigator for the payment squabble may come from the broad market drawback which has also seen the AFA token plummet by over 50% since the summer, according to CoinMarketCap.
Many speculate that what has precipitated the recent partnership between the AFA and Binance is potentially a higher offer that was otherwise not matched by Socios. The AFA has refuted this assumption, but Binance will do well to let this dispute play out while they remain in the background.
Whether these speculations will be confirmed is another matter, as the courts proceed to examine contractual obligations and seek to determine who is in the wrong.
BSC News will be following closely as the story develops.
What is Socios.com
Socios.com is the official crypto wallet and trading platform for some of the biggest sports teams in the world. The site is an innovative fan engagement platform that was created for the Chiliz blockchain. The Socios platform provides the owners of the fan tokens with access to voting rights in polls, VIP rewards, exclusive club, and sponsor promotions, AR-enabled features, chat forums, games, and competitions. Socios.com aims to introduce millions of new fans from around the world to the benefits of Fan Tokens in 2022 with new innovations, features, and rewards to be added throughout the year.
Follow Socios:
January 28, 2022
Babylons NFT Teams with Jigen for Luxury Fashion NFTs
The partnership would see luxury fashion NFTs come to the Babylons NFT marketplace in the future.
Babylons Secures Partnership With Jigen
Leading game aggregator and Non-Fungible Token (NFT) marketplace on Binance Smart Chain (BSC), Babylons, has partnered with Jigen to bring luxury fashion NFTs to its users.
Jigen offers a multi-chain ecosystem, enabling Luxury NFTs interaction in secondary markets like Babylons. Both protocols would merge to build the hype of fashion and luxury in the NFT space. Babylons took to Twitter on January 27th to announce the partnership deal.
“Babylons new partnership with @jigenapp. Jigen is the first #NFT gateway for fashion and luxury items in the #Metaverse and #gaming ecosystem. Jigen is an all-in-one solution for brands to bridge their business into the #blockchain space,” Babylons tweeted.
With Jigen, NFT enthusiasts and business owners would display their fashion items to the metaverse and gaming ecosystem. The partnership would ensure that Jigen users display their wearables and trade them on the Babylons NFT marketplace. In addition, the Babylons community would have the license to purchase exclusive Luxury NFTs, adding more utility to the Babylons’ $BABI token.
What is Babylons?
Babylons is a community-governed NFT marketplace on Binance Smart Chain for creators, investors, users, and collectors. The platform has many unique features, including its low-cost minting, weekly rewards, and a Decentralized Autonomous Organization (DAO) governance that puts the power in the community’s hands.
Where to find Babylons:
Website | Twitter | Telegram | Medium
What is Jigen?
Jigen is an NFT gateway for Fashion and Luxury items in the metaverse and gaming ecosystem. The protocol focuses on a three-point plan to build its brand, offer exclusive NFT drops through its Launchpad, and create custom NFT works for companies and projects.
Learn more about Jigen through the following links:
What are Interest Rates
Lending money at no cost is not practical because of the time value of money. Interest rates are necessary costs that help to keep an economy stable.
Introduction Interest Rates
Credit plays a very significant role in the economy. It helps to ensure that an economy's financial cycle is always in motion. It is also a means through which individuals can raise capital and pay it back later. Businesses also make use of credit for the purchase of goods and services. When the purchased goods are sold, profits are made which are then used to repay the debt. In fact, anybody for various reasons can take a loan and pay it back over time.
For credit to be easily accessible by those who need it, some kind of incentive is usually involved for creditors. Most times, the incentive is in the form of interest which creditors charge borrowers. In this write-up, we will discuss everything you need to know about interest rates.
Interest Rates Explained
Interest rate is a commonly used phrase used in the financial world. However, what is interest? Interest is a financial incentive owed by a lender to the borrower. It is the cost incurred by a borrower for borrowing money. For instance, if Jackson decides to lend Jonathan some amount of money, say $5000, they may have an agreement that the refund would be at 5% interest. This means that Jonathan will have to repay the $5000 plus an extra 5% of the borrowed sum. That is, he will pay back $5250 to Jackson.
Having understood what interest means, we can easily deduce what interest rate is. Interest rate is simply the proportion of a loan charged as interest with respect to time. Therefore, if Jackson's interest rate is 5% per year, Jonathan would have to pay the sum of $5250 in the first year.
Simple and Compound Interest
Interest rates are termed either simple or compound. Using the earlier illustration, simple interest maintains the same rate for subsequent years, that is, 5% interest every year ($5250 yearly). In contrast, compound interest charges interest on the initial principal and accumulated interests from earlier intervals. For example, 5% of the $5250 from the first year gives $262.5. Hence, if the loan is for two years at 5% compound interest, $262.5 will be the interest for the second year rather than $250.
Types Of Interest Rates
- Nominal interest rate: This refers to the interest rate that applies to the specific amount borrowed. It does not take inflation or any other fees into consideration. If the nominal rate of a given loan is 10%, the borrower will pay exactly 10% of the loan amount as interest. Another name for the nominal interest rate is the coupon rate. It is so-called because it is always inscribed on bondholders' redeemed coupons.
- Real interest rate: This is very different from the nominal interest rate. This type of interest rate is dependent on inflation. If an annual compound rate is 10% of its principal rate and the rate of inflation is 8%, then the real interest rate is 2%.
- Effective interest rate: This type is a compounding form of the interest rate. For instance, if a contract pays 6% yearly and compounds semi-annually, an investor who puts $3000 in this bond will receive $90 of interest payments after the first six months ($3000 x 0.03) and $92.7 of interest after the next six months ($3090 x 0.03). This means that the investor received $182.7 interest that year. Hence, for this illustration, the nominal rate is 6%, and the effective rate is 6.09% ($3000 x 6.09).
The Economic Significance of Interest Rates
Now, let us explain the critical role interest rates play in an economy. In commercial banks, all transactions revolve around borrowing and lending. Anyone who deposits money is a lender. As banks pay other people, you receive interest because your deposits are, in principle, lent to other people. You also pay interest to the bank each time you borrow money.
Although banks charge and pay interest, they do not have the flexibility to set these rates. Only Central Banks have the right to do so. By increasing or decreasing interest rates, a Central Bank can regulate the economy. If the interest rates are increased, more interest will accrue to you if the bank lends out your money. The downside is the higher cost incurred by those who want to borrow. Therefore, when interest rates are high, it is expensive to borrow but profitable to lend.
The reverse is the case when interest rates are reduced. It is less profitable to lend but attractive to borrow. Generally, interest rates affect consumer behavior. The purpose of lowering interest rates may be to increase the spending rate of the economy at a time when it has dropped. When individuals and businesses see that the interest rates are cheap, the level at which they borrow is increased.
A struggling economy will benefit from lowered interest rates, but it will lead to inflation. When there are more funds in circulation due to reduced interest, there is a higher spending rate. The demand for goods is increased, and it will suppress supply. Inflation eventually sets in to balance the economy.
Another natural way to restore balance is to increase interest rates. When this is done, there is fewer amounts of funds in circulation. Consumers begin to panic and repay their debts. At this point, there is much to gain when your money is loaned out. Consumers, therefore, save in banks so they can earn interest. However, there will be less demand for goods again which will induce poor growth of the economy.
Interest Rates Can Be Negative
It may sound surprising, but a Central Bank can adjust interest rates in such a way that you pay to either lend money or save it in a bank. In the unusual scenario a borrower receives interest rather than pay interest. Negative interest rates may be used by Central Banks as one of the tools of last resort, to revive an economy in a very drastic state.
When individuals realize that they need to pay money to save in banks or lend to others, they decide to keep the money themselves during an economic decline. The idea here is that borrowing is incentivized to stimulate further economic activity. While this measure is a very negative approach, many experts believe it is the last resort to help a crumbling economy.
Closing Remarks
The concept of interest rate is straightforward to understand. The interest rate policy influences the economy of a country as well as individual behavior. Central banks play a key role in setting these rates to ensure an economic balance. High-interest rates may increase the yield of lenders but slow the growth of the economy. In contrast, low interest rates may reduce the yield of lenders but increase the growth of the economy.
Don’t forget to download the BSC News mobile application on iOS and Android to keep up with all the latest news for Binance Smart Chain and crypto! Check out the DeFi Direct Linktree for all the access links!
For those looking for tools and strategies regarding safety and crypto education, be sure to check out the Tutorials, Cryptonomics Explainers, and Trading Tool Kits from BSC News.
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