Interest Rates Essay Example | Topics and Well Written Essays - 2000 words

Interest Rates - Essay manikinAll the monotheistic religions i.e. Judaism, Christianity and Islam looked amour with contempt where the Judaism and Christianity compromised with its significance as stimulating force for economic prosperity, Islam hush treats it as a war against God and practicing Muslims dislike the lending and receiving of beguile . In our early history the Greeks were considered as highly civilized nation. Lending money at interest was forbidden by the Greeks. Aristotle whose powerful bill of indictment greatly influenced the later nations condemned the taking of interest in very strong words. He compared money to a barren hen which laid no eggs. According to Aristotle, the object of the use of money was to facilitate exchange, and the overflowing satisfactions of human wants. According to him this was the or so natural purpose of money money could not be employ as the source of accumulation i.e. to increase at interest. So accumulating money at interest wa s the most unnatural of all ways of making money. A piece of money cannot beget another piece, and then it was unjust. Plato too condemned interest. Similarly Roman Empire prohibited the charging of interest, and they were first nation to enact laws for the protection of debtors. step by step prohibitions against usury began to be renewed in Europe. In England the ban was renewed in 1545, during the reign of enthalpy VIII. It was only during this period the word usury began to be replaced interest. (Homer 1996)The Prerequisites to the Rise of Interest RateIn the developing economies the demand for capital is great while the supply is very limited as compared with developed economies. borderline productivity of capital is very high in developing countries and hence the rate of interest is to a fault high. Some political factors also contribute to high rate of interest in poor countries. As a high risk of bankruptcy is involved the higher rates of interest are claimed by the lending agencies.Where there are possibilities that capital would earn greater reward for the investor, he will be willing to pay higher rate of interest keeping in view the higher compass point of capital productivity and better power of payment of interest. In such patch the rate of interest will rise.When a loan is required for a longer period the money lender would favor to advance loans to debtors at higher rate of interest as the money lender/creditor have to subdivision with their cash assets for a long period which involves greater risks than the short term loans.Increase in spate and business activities creates healthy atmosphere and it also creates demand for capital to greater extent and in such circumstances the expectation of higher rate of interest can not be ignored. The rate of interest will rise due to excessive demand of cash resources.When the economy is under inflationary pressure, it is revelatory of the fact that the higher rate of interest prevails in the econ omic activities of a country. In such situation the interest rates will also riseThe Nature and Necessity of Interest Rates wherefore should interest be paid at all In the Middle Ages Money