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High Quality Content by WIKIPEDIA articles! The "real interest rate" is approximately the nominal interest rate minus the inflation rate (see Fisher equation and below for exact equation). Since the inflation rate over the course of a loan is not known initially, volatility in inflation represents a risk to both the lender and the borrower. In economics and finance, an individual who lends money for repayment at a later point in time expects to be compensated for the time value of money, or not having the use of that money while it is lent. In addition, they will want to be compensated for the…mehr

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High Quality Content by WIKIPEDIA articles! The "real interest rate" is approximately the nominal interest rate minus the inflation rate (see Fisher equation and below for exact equation). Since the inflation rate over the course of a loan is not known initially, volatility in inflation represents a risk to both the lender and the borrower. In economics and finance, an individual who lends money for repayment at a later point in time expects to be compensated for the time value of money, or not having the use of that money while it is lent. In addition, they will want to be compensated for the risks of having less purchasing power when the loan is repaid. These risks are systematic risks, regulatory risks and inflation risks. The first includes the possibility that the borrower will default or be unable to pay on the originally agreed upon terms, or that collateral backing the loan will prove to be less valuable than estimated.