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JAMB Economics 2013 Question 48

Question 48

Financial Institutions

The rate of interest charged on loans depends largely on

  1. A.the prevailing exchange rate.
  2. B.marginal efficiency of capital.
  3. C.the risk associated with the loan.
  4. D.the prevailing tax rate.
Show the answer and explanation

Answer: C (the risk associated with the loan.)

Explanation

The riskier a loan (the more likely it is not repaid), the higher the interest the lender charges.