The rate of interest change on loans depends largely on?

A. the prevailing exchange rate
B. marginal efficiency of capital
C. the risk associated with the loan
D. the prevailing tax rate

Correct Answer:

Option A – the prevailing exchange rate

Explanation

Interest rates are determined, in large part by central banks who actively commit to maintaining a target interest rate. They do this by using the open market operations. To discourage borrowing, interest rates would be set high and set low to encourage lending. Therefore interest rates are determined mainly by the prevailing exchange rate