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Interest Rate Risk Interest rate risk is the potential for losses in the market value of bonds and other fixed-income securities caused by changes in prevailing interest rates. When market rates rise, existing bonds with lower coupon rates become less attractive and their prices fall; when rates fall, existing bonds with higher coupons gain value….

Interest Rate Parity (IRP) What is Interest Rate Parity? Interest Rate Parity (IRP) is the principle that connects interest rates, spot exchange rates, and forward exchange rates across countries. It states that, after hedging exchange-rate risk, returns on comparable risk-free investments in different currencies should be equal. IRP prevents riskless arbitrage opportunities in the foreign…

Interest Rate Options Overview Interest rate options are financial derivatives that let investors hedge or speculate on changes in interest rates. Like equity options, they come in two basic forms: * Call options — profit when interest rates rise. * Put options — profit when interest rates fall. These contracts are typically written on yields…

Interest Rate Futures Interest rate futures are standardized derivative contracts that let traders lock in a price related to an interest-bearing instrument (most commonly government bonds or interbank rates) for settlement at a future date. They are used to hedge interest-rate exposure, speculate on rate moves, or express views on the yield curve without trading…

What Is an Interest Rate Floor? An interest rate floor is a contractual minimum on a floating-rate loan or a derivative that guarantees a lender (or floor buyer) a minimum interest rate. It prevents the effective interest received from falling below a set level even if market reference rates decline. Key points * Protects lenders’…

Interest Rate Differential (IRD) An interest rate differential (IRD) is the difference between the interest rates of two comparable interest-bearing instruments—commonly two countries’ policy rates, two currency deposits, or two fixed-income securities. IRDs drive many trading and lending decisions because they represent potential profit from borrowing at a lower rate and investing at a higher…

Interest Rate Derivatives: Types, Uses, and Examples What is an interest rate derivative? An interest rate derivative is a financial contract whose value is tied to one or more interest rates. These instruments let market participants hedge or take positions on future movements in interest rates without buying or selling the underlying cash instruments directly….

Interest Rate Collar: Definition and How It Works An interest rate collar is a derivatives-based hedging strategy that limits a party’s exposure to interest rate movements by establishing both a ceiling (cap) and a floor on interest costs or receipts. It is commonly used by variable-rate borrowers to protect against rising rates while accepting a…

Interest Rate Call Option Key takeaways * An interest rate call option gives its holder the right, but not the obligation, to pay a fixed interest rate and receive a floating (variable) rate for a specified period. * The option is exercised when the market (floating) rate at settlement exceeds the strike (fixed) rate; the…

Interest Rate An interest rate is the percentage charged for borrowing money or paid on deposited funds. For borrowers, it represents the cost of debt; for lenders or savers, it’s the rate of return on funds provided. Key takeaways * Interest rates are expressed as percentages and often quoted annually (APR for loans, APY for…

Interest-Only Mortgage: How It Works, Advantages, and Risks What is an interest-only mortgage? An interest-only mortgage lets you pay only the loan’s interest for a set period, producing lower monthly payments up front. After the interest-only phase ends, payments typically increase because you must begin repaying principal as well as interest. These loans can provide…

Interest Expense What it is Interest expense is the cost a borrower pays to use someone else’s money. For businesses, it represents interest accrued on debt instruments—bonds, bank loans, convertible debt, lines of credit—and is reported on the income statement as a non-operating expense. It is generally calculated as the interest rate multiplied by the…

Interest Coverage Ratio: Definition and Purpose The interest coverage ratio (also called times interest earned, TIE) measures a company’s ability to pay interest on its outstanding debt from operating earnings. It is a solvency and profitability metric used by lenders, investors, and creditors to assess financial risk and borrowing capacity. Formula Interest Coverage Ratio =…

Interest What is interest? Interest is the charge for borrowing money or the compensation a lender receives for lending funds. It’s normally expressed as a percentage of the principal and described as an annual percentage rate (APR). Interest can also describe ownership stake in a company (a percentage interest). Key takeaways Interest compensates lenders for…

What Is Intercontinental Exchange (ICE) and How It Works Overview The Intercontinental Exchange (ICE) is a global operator of financial and commodity marketplaces, clearing houses, and data services. Founded in 2000 to modernize over-the-counter (OTC) energy trading, ICE has grown into one of the world’s largest exchange groups and is the owner of the New…

Interbank Rate The interbank rate is the interest rate at which banks lend to and borrow from one another on a short-term basis, typically overnight or for a few days. It represents the cost of short-term liquidity in the banking system and serves as a reference for many other interest rates across the economy. How…

Interbank Network for Electronic Transfer (INET) What INET was Interbank Network for Electronic Transfer (INET) was MasterCard’s system for moving funds between financial institutions. It handled settlement and the transfer of money for transactions on MasterCard-branded cards. INET worked alongside MasterCard’s Interbank National Authorization System (INAS), which handled electronic authorization of card transactions. The two…

Interbank Market Key takeaways The interbank market is a global, decentralized network where financial institutions trade currencies and currency derivatives directly with one another. Banks use it to manage exchange-rate and interest-rate risk, to hedge client exposures, and to take proprietary or speculative positions. Transactions are typically short-term (overnight up to six months) and often…

Interbank Deposits: What They Are and How They Work Key takeaways * An interbank deposit is an arrangement in which one bank holds funds on behalf of another and records the amount in a payable ledger account. * The holding bank opens a “due to” account for the depositing (correspondent) bank. For cross‑border deposits the…

Interactive Media What is interactive media? Interactive media refers to digital platforms and content that allow users to influence, customize, or participate in the experience. This includes social networks, video games, mobile apps, virtual reality (VR), and other digital tools that combine text, graphics, audio, and video in ways users can control or respond to….

Inter-American Development Bank (IDB): What it is and How it Works Key takeaways * The Inter‑American Development Bank (IDB) is a multilateral development bank founded in 1959 to support economic and social development in Latin America and the Caribbean. * It is owned by 48 member countries and provides loans, grants, and technical assistance. *…

Intentionally Defective Grantor Trust (IDGT) What is an IDGT? An Intentionally Defective Grantor Trust (IDGT) is an irrevocable trust used in estate planning to separate estate tax treatment from income tax treatment. Assets transferred into an IDGT are removed from the grantor’s taxable estate for estate tax purposes, but the grantor remains responsible for paying…

Intellectual Capital Intellectual capital is the collective knowledge, skills, processes, relationships, and proprietary information that give an organization a competitive advantage and contribute to its long‑term value. Unlike physical assets, intellectual capital is intangible and often difficult to quantify, but it plays a central role in innovation, efficiency, and market differentiation. Key takeaways Intellectual capital…

Intangible Personal Property Intangible personal property consists of non-physical assets that carry value because of the rights, future benefits, or recognition they represent. Unlike tangible personal property (machinery, jewelry, electronics), intangible assets cannot be touched but can be owned, sold, licensed, or otherwise monetized. Key takeaways Intangible assets have no physical form but represent value…

What Is an Intangible Asset? Intangible assets are non-physical resources that provide economic value and competitive advantage to a business. Unlike tangible assets (buildings, equipment, inventory), intangible assets cannot be touched but can be critical drivers of revenue, customer loyalty, and market position. They may have a finite legal life (for example, a patent) or…

Insurtech: How Technology Is Transforming Insurance Key takeaways * Insurtech combines insurance and technology to make coverage more efficient, personalized, and flexible. * Technologies such as AI, IoT, big data, automation, and blockchain are reshaping pricing, underwriting, claims processing, and contract execution. * Benefits include lower costs, faster service, better risk segmentation, and new product…

Insurance Underwriter An insurance underwriter evaluates and prices risk on behalf of a payer (an insurance company, bank, or other financial institution). In exchange for a premium or fee, the underwriter assumes the financial risk of a future event and sets terms, limits, and prices that reflect the likelihood and potential cost of that event….

Understanding Insurance Premiums: Definitions, Calculations, and Types An insurance premium is the payment a policyholder makes to keep an insurance policy in force. Premiums apply to health, auto, home, life, and other types of insurance. They reflect the insurer’s assessment of the risk being covered and fund both claim payments and the insurer’s operations and…

Insurance coverage protects individuals and businesses from the financial consequences of unforeseen events by transferring risk to an insurer in exchange for a premium. Different types of insurance address different risks — the most common being auto, life, and homeowner’s insurance. Key takeaways * Insurance reduces financial risk and liability by paying claims for covered…

Insurance Claim: Definition, How It Works, and Types An insurance claim is a request by a policyholder to an insurer for coverage or compensation for a covered loss or policy event. The insurer investigates the claim and either approves payment to the insured (or an approved interested party) or denies it. Claims can cover medical…

Insurance Insurance is a contractual way to transfer financial risk to an insurer in exchange for regular payments (premiums). Insurers pool many policyholders’ risks so that the cost of losses is shared and more predictable. Common goals of insurance are to protect health, income, property, and survivors from large, unexpected expenses. How insurance works You…

Insurable Interest Insurable interest is a legal and financial requirement that a person or entity must have a stake in an item, event, or life such that its damage, loss, or death would cause them financial loss or hardship. Insurance exists to protect against real economic consequences, not to enable profit from someone else’s misfortune….

Insufficient Funds (Non-Sufficient Funds, NSF) Key takeaways Non-sufficient funds (NSF) occur when an account lacks enough money to cover a transaction, causing the payment to be returned and often triggering a fee. NSF fees average about $34. Overdraft fees are different: they apply when a bank covers a transaction that makes an account negative. You…

Instrument: Definitions in Finance, Economics, and Law An instrument is a means of storing, transferring, or representing value or obligations. Depending on context, it can be a tradable asset, a policy tool used to influence economic outcomes, or a formal legal document that creates rights and duties between parties. Key takeaways * In finance, an…

Institutional Investor: Who They Are and How They Invest Definition An institutional investor is an organization that manages and invests large pools of money on behalf of others—clients, members, beneficiaries, or shareholders. Examples include mutual funds, pension funds, insurance companies, endowments, hedge funds, and sovereign wealth funds. Because they trade in big volumes and use…