Interest Rate is the price of borrowing or lending a certain amount of money (e.g. 100.000 EUR) for a pre-defined period (e.g. 3 months, 1 year, …). When negotiating Interest Rates, the investor trades a benchmark, such as Euribor 3Months or Federal Funds 30 days.
Find hereafter Interest Rates key concepts:
- Price, defined in %; typically this percentage is referred for an annual period (e.g. 4%/ year).
- Pre-defined period: e.g. 3 months, 4 months,...
- Benchmark calculation rules: the entity, or group of entities, that defines the benchmark; For example US Federal Funds are defined by the Federal Reserve while EURIBOR is a price set on the market in result of supply/demand for liquidity by the most important European banks.