Showing posts with label Economic Terms. Show all posts
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January 19, 2014

Interest Spread and NIM (Net Interest margin) are often considered as the same but both terms are different. We know that a bank or a financial institution earns interest on their lending while they need to pay interest on their borrowing.

NIM is the ratio of the interest difference (Interest Received-Interest Paid) to Average Interest Earning Assets.

NIM= (Interest Earned-Interest Paid)*100/Average Interest Earning Assets

Interest Spread=Interest Income as Percentage of Total Lending-Interest Expense as Percentage of Total Borrowing

Illustration:

ABC bank has a total of borrowing of Rs. 5,000 million and its total lending is Rs. 4,000 million while its Interest Earnings and Interest Expenditures are Rs. 400 million and 200 million respectively.

Then,

NIM will be: (400-200)*100/4,000 or 5 %.

Interest Spread will be: (400*100/4,000)-(200*100/5,000) or 6%.
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September 30, 2012


Fiscal Deficit: Fiscal Deficit (FD) is the difference between total expenditure and total revenue of a government.

Primary Deficit: Primary Deficit  is nothing but Fiscal deficit devoid of the interest paid.

Primary Deficit= Fiscal deficit-Interest Paid

Current Account Deficit (CAD): CAD is the difference (in monetary value) between  imports and exports of a country.

Trade Deficit(TD):  TD is the CAD devoid of  Balance of Payment (BOP) of Investment and Foreign Aids  BOP.
Simply put, TD is the BOP of goods and services only. 

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