interest Interest is the fee paid by one party to another for the use of their money. It is possible to earn interest by leaving it a bank account while the bank makes investments and earns interest off the loans it makes for other people and organisations. Goods and services bought on credit will often accrue interest, as the arrangement is effectively a lending arrangement (the item being lent being the goods) until the last payment is made. The interest covers the seller for the lack of capital in its possession while the payments are being made. Fundamentally, interest is a rental charge for the borrowing of money or other assets; it is also a form of risk mitigation, as there there is a risk of non-repayment.
In Islam, charging interest is utterly forbidden, a ruling based on the prohibition of riba, usury, or financiers getting money for no reason other than the fact that they are rich and able to lend it. Most innovations in Islamic banking and finance have been aimed at providing the opportunity for investment without charging interest.
interest rate The rate at which interest is paid by the borrower to the lender, or by a bank to its account holders. It is expressed as a percentage of the amount borrowed or deposited over time, for example, 4.6% per annum (usually shortened to 4.6% p.a.).
interest rate futures A financial derivative whose underlying asset is an interest-bearing instrument.
interest rate swaps An agreement between two parties where one’s future interest payments are exchanged for the other’s. They are used to attain a lower interest rate by limiting exposure to fluctuations in interest rates.
international debt The total debt owned by a country’s government and residents to all foreign governments and residents.
International Monetary Fund (IMF) An international organisation whose aim is to stabilise international exchange rates and promote development by enforcing appropriate economic policies. It also provides loans, mainly to developing countries, to assist in their development. It was formed in 1945 with 29 members, and now its membership covers the entire United Nations.