Question

Differentiate between fixed and floating rate of interest. (Any two basis)

Hint:

Remember: Fixed rate = stable payments; Floating rate = payments vary with market rates.

Answer 1

A fixed rate of interest and a floating rate of interest are two common types used in loans and investments.
1) Rate Stability:
In a fixed rate, the interest remains the same throughout the loan period, giving certainty to borrowers about repayment amounts.
In a floating rate, the interest rate changes according to market conditions or benchmark rates like MCLR or Repo Rate.
2) Risk and Flexibility:
Fixed rate loans protect borrowers from market fluctuations but may be higher than current floating rates.
Floating rate loans can benefit borrowers when market rates fall but can increase payments when rates rise.
This difference helps customers choose based on risk preference and market trends.