Issue 1 2019

Acquisition International - Issue 1 2019 39 How Are Interest Rates Determined? veryone, from young savers through to businesses and individuals looking to buy their own homes, has heard of interest rates. But understanding how they actually work can be confusing, although it’s actually fairly easy to grasp. Although it differs around the world, in general base interest rates are set by each country or region’s central bank, so for example the Bank of England, or the United States Federal Reserve Bank. This is the rate that they will be lending and borrowing at, and acts as a national minimum. It is determined by many social, economic and political reasons. This is the minimum interest rate, however, and as such lenders and financial institutions can select to raise this for loans if they wish. However, they are bound by certain restrictions, such as demand, what their competitors are charging and any additional services they can offer- for example, many loans and mortgages charge higher rates of interest for those who have poor credit or unsecure jobs such as zero-hour contracts. In general, interest rates are calculated yearly, and then divided by the amount of times they are paid out to determine the rate per month or week, dependant on when this is paid out. This allows them to track the base rate and act accordingly, whilst still enabling borrowers to pay back their interest monthly or weekly rather than just every year, which might prove difficult with larger loans such as mortgages and business loans. For those who want to keep up-to-date with the latest financial institutions and the decisions they are making regarding interest rates, subscribe to Acquisition International Magazine, as well as its sister publication Wealth & Finance International. Interest is effectively the price of money: whether it is the price a bank or lender is offering in return for a loan or mortgage, or the price a saver can expect to receive for depositing their money, it is always calculated by the individual institution involved. Staff Writer Hannah Stevenson offers a breakdown of how this is calculated and why borrowers and savers alike should keep a watchful eye on their rate. Exchange Traded Funds, or ETFs as they are better known, are traded on a stock exchange, rather like a stock itself. Giving you a brief overview of this often overlooked or misunderstood asset class is Hannah Stevenson, Staff Writer here at Acquisition International Magazine. ETFs are a form of marketable security tracking either an index, a commodity, bonds, or a basket of assets. Most commonly indexed, they are remarkably similar to mutual funds, with one key difference: they are traded like common stock on an exchange, and as such their price fluctuates more frequently as ETFs are traded throughout the day. Offering both tax efficiency by generating fewer taxable events than mutual funds and reduced costs, ETFs make a great addition to any portfolio. As an alternative asset class, they are ideal for diversifying a portfolio and can complement similar assets such as mutual funds or hedge funds. As they can be bought and sold through stock brokers they are great for High Net Worth Individuals seeking to move into new asset classes. Ownership of any assets owned by the ETF itself is divided into shares, which are owned by the shareholders. Offering a low-cost alternative entry into markets investors may otherwise have overlooked, ETFs have many benefits, although, as with all investments, there are risks. Working for both long term and short term investment strategies, ETFs are a flexible option that offer all the benefits of ordinary stock, with the added bonus of being traded in a similar fashion to common stock. There are types of ETF to suit every investor, including Bond ETFs, Leveraged ETFs, Inverse ETFs and Actively Managed ETFs. To find out more about ETFs check out the Finance of our website, where you can browse the latest comment, insight and updates on this and many other forms of funds and the finance industry in general to gain the knowledge you need. There are also a range of ETFs offered by our award winners: you can browse our winner’s lists HERE, and know that every provider has been recognised by our respected judges and renowned research team. What Is An ETF? E ...interest rates are calculated yearly, and then divided by the amount of times they are paid out to determine the rate per month or week, dependant on when this is paid out.