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متابعة

A bank requiring a higher interest rate on an automobile loan than on a home mortgage loan is demonstrating the core principle that says:

1. "Time has value."

 

2. "Markets determine prices and allocate resources."

 

3. "Risk requires compensation."

 

4. "Information is the basis for decisions."

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تم إضافة السؤال من قبل Shahbaz Hayder , Group Head of Finance , Sharif Group of Companies
تاريخ النشر: 2016/02/02
Ashish Ashra
من قبل Ashish Ashra , finance manager , Canadian solar

3rd is the best suitable answer, as automobile loan has lower security coverage because of depreciation, as compared to home loan.

Shahbaz Hayder
من قبل Shahbaz Hayder , Group Head of Finance , Sharif Group of Companies

Yes, Option 3 is the right answer.

Shazia Anees
من قبل Shazia Anees , Assistant Manager Finance , Arham Trading Company

3. "Risk requires compensation." ======================

Mohammed Amin Petiwala
من قبل Mohammed Amin Petiwala , Finance and Investment Advisor , Special Economic Zone Authority Duqm

3. Risk requires compensation.

Life of Home and Automobile defers. Thus value of underlying asset varies at different pace.

Rate of interest is summation of inflation adjusted cost plus risk premium.

Liquidity of secondary loan market is another but less significant factor affecting it

Thus, rate for automobile finance is higher than housing finance

Jafar  Ali Wahed Mohammed
من قبل Jafar Ali Wahed Mohammed , Finance Manager , Al Jubiri Group

3. Risks require Compensation.

 Since the home loans offer a greater security, the rate of interest happens to be lower. IN automobiles, the security is lower and administrative costs in case of default happen to be more. Hence, banks normally prescribe higher rate of Interest on Automobile loans than on HOme Loans.

Gayasuddin Mohammed
من قبل Gayasuddin Mohammed , Advocate , Practicing Law before High Court at Hyderabad

I think Option (3) is the right answer as automobile loan is the more riskier when compared to the home mortgage loan. Thanks.

Mahmoud Hamid
من قبل Mahmoud Hamid , Finance Manager , Experts

I'll go with the answer no (3): Risk requires compensation.

Zehab Osman
من قبل Zehab Osman , Accountant , Aldar Consultancy Co.

------------option 3--------------------------

Rehan Rehan Nasir
من قبل Rehan Rehan Nasir , Junior Internal Audit officer , Chemicals & Dyes

Home loans secure due to its mortgaging than automobile loans. Thats why automobile loan having higher level of risk

Augusta yarteh
من قبل Augusta yarteh , Finance Officer , King Fahd University Of Petroleum & Minerals

i choose option 3 risks requires compensation

 

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