Different interest rates (p208)

Question 1

Name 3 x different interest rates

Answer 1

1) repurchase rate
2) prime overdraft rate
3) mortgage bond rate

Question 2

Explain the ‘repurchase rate’

Answer 2

It is the interest rate the Reserve Bank charges commercial banks when it lends money to them (called the repo rate)

Question 3

Who fixes the repo rate and who is it headed by?

Answer 3

Monetary Policy Committee (MPC)

Headed by the Governor of the Reserve Bank

Question 4

Explain the ‘Prime overdraft rate’

Answer 4

The interest rate the bank charges their clients.

Bank : PAYS repo rate to the Reserve Bank (when it lends money)
Bank : CHARGES prime rate (which is higher than the repo rate) to their clients who borrow money from them.

Question 5

There are 2 ways of calculating interest, namely simple and …..

Answer 5

compound interest

Question 6

Explain ‘mortgage bond rate’

Answer 6

Interest rate paid on money borrowed to purchase a property.

Can repay over 25 years.