An Array of Interest Rates

Textbooks often speak of “the interest rate, but in fact today’s complex financial system has a vast array of interest rates. Interest rates differ ‘mainly in terms f the characteristics of the loan or of the borrower. Let us review the major differences.

When these three factors (along with other considerations such as status and administrative costs) .are considered, it is not surprising that wees so many different financial instruments and so many different interest rates. Figure 25-2 and Table 25-2 show the behavior of a few important interest rates over the last  three decades. In the discussion that follows, when we speak of “the interest rate,” we are ‘generally referring to the interest rate on short-term government securities, such as. the 90 day Treasury bill rate. As Figure 25-2 shows, most other interest rates rise and fall in step with the 3-month Treasury-bill rate.

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