The Rate of Interest

  • J. W. Nevile


In technical economic language interest is a payment for the use of capital with the rate of interest the price paid for this use. Except in some specialized contexts interest is a financial variable paid for the use of financial capital or money. Economists often talk of “the rate of interest”. In practice there is not one rate of interest but many . Interest rates can be on loans of any length of time. Loans from overnight to 10 years are common, but some are indefinite with no commitment ever to repay the money. In addition to the amount paid for the use of capital, interest rates often incorporate a risk premium to compensate the lender for bearing the risk that the capital may not be repaid promptly, or at all. The risk of most national governments defaulting is practically zero, so the interest rate they pay can be taken as a measure of the pure interest part of an interest rate.


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© Joseph Halevi, G. C. Harcourt, Peter Kriesler and J. W. Nevile 2016

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  • J. W. Nevile

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