Question

Interest rates are important to financial institutions since an interest rate increase ________ the cost of acquiring funds and ________ the income from assets.
A) decreases; decreasesB) increases; increasesC) decreases; increasesD) increases; decreases

Answer 1

Answer:

B) Increases; Increases

Explanation:

An interest rate represents a percentage of any amount borrowed, deposited or lent among various parties including individuals and organisations and most especially financial institutions.The interest rate is usually due at agreed intervals based on the entire sum borrowed or lent.

Interest rates represent amounts over the principal amount collected, therefore it willusually Increase the cos to acquiring funds. For instance, depositors are given a particular interest for their monetary deposits in banks (financial institutions), this rates increase the cost of getting those funds by the banks. Also, it increases the cost of individuals or business organisations getting funds.

Furthermore, the interest rates also increase the income from assets because of the interest rate that is usually given on securities such as bonds. These bonds are assets to those who buy them and the periodically agreed inerest rate will increase the income the buyers of the asset are to get.