Question

compare between short interset rate and long interset rate?

Answer 1

A short-term interest rate, or the money market rate, applies to a loan or investment with a maturity of less than a year. Short-term rates are applicable to financial instruments including Treasury bills, bank deposit certificates, and commercial paper. The Federal Reserve influences the market of reserves and the rate of federal funds, which has some effect on short-term interest rate.

For a financial asset with a maturity of one year or longer, a long-term interest rate applies. Long-term interest rates therefore apply to bonds, immovable property, and notes payable. The relationship between Fed's monetary-policy actions and long-term rates is weak and variable, according to the Federal Reserve.

For the short term, when you borrow money or lend money, your interest rate will be lower than if you borrow or lend money for the long term. The difference between short- and long-term interest rates is partly attributable to short-term investment risk versus long-term investment risk. With the passage of time an increase in risk of uncertainty comes.

The risk that a lender assumes when it lends cash for a long term is offset by paying a higher interest rate than it pays for short-term loans. Consequently, short term investments tend to pay less interest than long term investments.