Benchmark is a term by which we mean a set of standards used for evaluating the level of quality or performance. It cab be drawn from companies own experience or from the other companies experience.
While by benchmark lending we refer to the interest rate that banks have to pay when they borrow money. Now you will be thinking that does a bank also borrow money from other in the form of loan?
The answer would definitely be yes, banks also borrow money.
The bank has to keep some amount of money as a reserve.
But sometimes it happens that they don’t borrow money over a short period of time, say one night, and then they don’t have reserves left, for this they have to borrow money on a certain interest rate. Due to this reason, banks and mortgage companies tries to find people who are in need of a loan and then provide them loan, so banks can earn money from that loan given to customer by taking interest.
It can be valuable business to the bankers and mortgage companies who are providing loan, when there are lots of customers in the market.The bank is when borrowing money, it also has to pay some interest, that interest rate is called benchmark rate. It is the lowest interest rate which the investor accepts for a non treasury investment. It is also known as base interest rate.
But the interest rate fluctuates, when there are a wide variety of pressures from surrounding. This rate is usually set by the Federal Reserve in the United States. But most people use the interest rate which is set by the Central banks.
The benchmark rates are usually used by banks and other lenders, so could determine the interest rates for their financial products, like credit cards, car loan, and home loans. The bank also uses the benchmark rate to determine the prime rate. Prime rate is the lowest interest rate which the banks offer to their customers.
This prime rate is popular in Canada for benchmark lending. It is made to help people to recover from predatory lending.....
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