The benchmark or prime rate of interest for overdrafts varies directly with:
A) demand for funds in the bond markets.
B) varying demand and supply for funds in the short-term markets.
C) varying demand and supply for funds in the long-term markets.
D) changing asset prices.

Question

Quizplus · Accepted Answer

The benchmark or prime rate of interest for overdrafts is mainly influenced by the varying demand and supply for funds in the short-term markets. This is because overdrafts are short-term loans, and the interest rate charged on such loans is usually based on the prevailing market conditions in the short-term markets. While other factors such as changing asset prices and demand for funds in the bond and long-term markets may have some indirect influence on the benchmark rate, they are not as significant as the short-term market conditions for overdrafts. Thus, option B is the best choice.

The Benchmark or Prime Rate of Interest for Overdrafts Varies