Real interest rates reflect the purchasing power of investors, whereas nominal interest rates can be used to signify current market and economic conditions.
Real or nominal terminology can be used to express interest rates. Real interest rates plus the anticipated rate of inflation make up a nominal interest rate. A real interest rate depicts the borrower's actual cost of borrowing money and the lender's or investor's actual yield.
Interest rates serve as a proxy for the borrowing costs and the yield on investments and savings. They are represented as a percentage of the overall loan or investment amount. They can be the overall return that lenders obtain when they make loans or the return that individuals make on their investments and savings.
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