Interests Rates - Coursework Example

Interests RatesIntroductionWhether you are starting to save or you want to earn higher interests rates, one must understand the various prevailing rates on different products from banking institutions. Royal bank of Canada currently maintains an interest rate of 1.050% on saving on every dollar, with no minimum balance and no monthly fee, while CIBC bank returns an interest rate of 2% on savings deposits but require a minimum balance and within a stipulated time frame. On the other hand, Bank of Montreal earns an interest rate of 0.

200% every day on every dollar and gives the account holder the right to access his funds while still earning interests. Finally, HSBC Bank of Canada has different interest rates depending on the account closing balance every day. A closing balance of CAD 24,999.99 earns 0.50%, 25,000.00 – 49,999.99 earns 0.80%, 50,000.00 earns 1.05% and 100.000.00 earns 1.15%. These rates are per annum which are further calculated on daily basis, taking into account the daily closing balance. All the above banks offer competitive interests on the certificate of deposit, of which interests are calculated on the amount and specified time frame.

Interest on these certificates is not expressed before on applies for the certificate and fills in all the required details.On home equity loans, HSBC bank offers the lowest rates with a 2 years fixed rate of 2.85% or a 5 year fixed rate of 3.19% on personal rates. Its’ variable rates are for 5 years closed at 2.65%. CIBC bank offers a variable rate of 4.000% for 5 years, with varying fixed rates depending on the years, which are 2.99% for one year, 2.94% for 2 years, 3.65% for 3 years, 4.

24% for 4 years, 4.99% for 5 years, 5.95 for 7 years and 6.75% for 10 years. Bank of Montreal offers variable rates of 3.000% for 5 years, while its' fixed rates are 3.290 for 5 years, 3.850 for 3 years and 3.040 for 2 years. Royal Bank of Canada has the highest profit margin with interests fixed rates at 4.540% for 4 years and 4.940 for 5 years.Akerlof’s Lemons Akerlof’s experience during his writings on Lemons problem and its effect on the proficient functioning of a market is best summarized by stating that markets are characterized by asymmetric information, and thus there is a need for adjusting the markets interests rates for individual market participants, which necessitates the better-informed participants to take costly actions in an effort to develop market outcome by transmitting credible information to the poorly informed (George et al, 2001).

According to Akerlof, most sellers are likely to lower the quality of a product in situations where the buyer cannot exactly determine or observe the product quality. He adds prices are likely to decline because of the unwillingness of the buyers to pay because of skimped quality. This leads a much lower quality because sellers maximize every opportunity to make more prices at the lower prices offered by buyers. This leads to market failure because sellers would sell a high-quality product at high prices despite the fact that buyers are willing to pay for the high prices.

Akerlof uses examples of second-hand cars to enhance his theory of market equilibrium. The categories the cars into two; Lemons and Plums. The lemon represents a bad car, a car that is of poor quality and buyers should avoid buying lemons in the market according to Akerlof. He uses plum to mean a good quality car and most buyers would prefer to buy a plum. This situation occurs because people will not easily verify the quality of a product. If it was easy to verify the quality of a car in the second-hand market realms, such cases of make hard decisions would not be seen.

Because there is no assurance of quality, prospective buyers are encouraged to carry out a research before choosing on which car to buy.ReferencesGeorge A. Akerlof, A. Michael Spence, Joseph E. Stiglitz (2001). The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel .