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Interest Rate in Egypt

In: Business and Management

Submitted By mansy666us
Words 765
Pages 4
-------------------------------------------------
Interest rates are considered to be the price of holding money and the opportunity cost of any investment. After analyzing interest rates in our course do you think that interest rate in Egypt reflects the real opportunity cost of holding money? Why or why not? Please support your answer with all the references you have searched.
Interest Rate is: The amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets. Interest is charged by lenders as compensation for the loss of the asset's use. In the case of lending money, the lender could have invested the funds instead of lending them out. That’s why interest rate should cover the opportunity cost of lending the money to the borrower. Also, interest rate should cover the inflation rate in the economy, as by time the lender receives the principal again due to inflation, the money will be of less value than when first lent to the borrower.
So, if the interest rate doesn’t cover both the opportunity cost and inflation, it’ll be irrational decision to lend the money.
For example, if the lender can invest in some real estate and construction projects with an average return of 10% & if inflation is 10%, then the interest rate should be more than 20% to be rational choice for the lender to lend the money.

Interest rate in Egypt: (Lending Interest Rate)

So, The lending interest rate is now at 9.75% annually, so, does this rate covers the inflation rate & opportunity cost of investing the money in some other activities?
Inflation Rate in Egypt:
Inflation rate is calculated via the CPI (Consumer Price Index). The CPI measures changes in the price level of consumer goods and services purchased by households. The CPI is calculated by taking price changes for each item in the predetermined basket of goods and services...

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