What are interest rates based on?
Well for short term interest rates, they are based on the bank prime lending rate, which is determined by the Bank of Canada’s overnight lending rate. For fixed term interest rates, they are based on government of Canada long term bonds. Now, first of all, why is this question important, and why do I think it’s something that you should be asking.
Well, first of all, I think when you do ask it I think people will come back at you with a really general answer. And again, I really encourage you to push them to give you more specifics. WHY? Because both short term and long term interest rates are entirely not correlated, so that means I have to be watching certain indicators in each of those markets, to get a sense for where things are going, in order for me to create a strategy that makes sense for you.
SO, if somebody really doesn’t understand the basics of where interest rates come from and how they are determined-then how could they possibly watching the right indicators, and then how can they possibly give you a solid strategy that’s going to help you for your overall financial wellness.
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