Interest definition

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In finance, interest can have more than one definition. Firstly it refers to the charge levied against a party for borrowing money, which can be either a cost or a means of making profit for a trader. Secondly, it can mean the portion of a company’s stocks held by a particular shareholder.

Interest is an important concept for a trader, because many trades involve either lending or borrowing money. The amount of interest charged is usually given as a percentage of the amount borrowed, and called the interest rate. This applies to both private lenders and central banks, who lend to private banks. The rate at which central banks lend is often called the base rate.

When discussing the amount of shares in a company owned by a single stockholder, interest is usually also presented as a percentage. In this instance, a figure above 10% can be referred to as ‘significant interest’.

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