Term Structure of Interest Rates
Means the whole range of interest rates which apply to all the different types of loans that exist. Broadly, interest rates depend on the length of the loan and the degree of risk associated with it. Money lent to the government when a bond is bought will have a very low rate of interest because it is certain that it will be paid back and that the interest will be paid in full and on time. Similarly money lent within the banking system overnight will also have a very low rate of interest. A credit card loan will have a very high rate of interest: non-repayment is quite likely. Loans to firms for investment purposes will lie somewhere in between.