Pricing the Prime and Bank Lending Rates

Ganti Subrahmanyam

The IUP Journal of Bank Management, 2008, vol. VII, issue 2, 75-82

Abstract: In this study, a highly useful and comprehensive survey of the several loan pricing approaches has been discussed. Particular attention has been paid to the most significant and popularly practiced techniques of pricing the prime lending rate. In the process, highly useful illustrative examples have been discussed on how to scientifically compute the marginal cost of funds. Specifically, the present value approach to loan pricing is discussed as a novel and all inclusive model. This method explains as to how to incorporate the benefits of any deposit balances the borrower leaves with the lending bank. Finally, a brief discussion on the various forms of financial intermediation has been presented. This is done with a view to relating the costs of borrowing funds under several forms of financial intermediation.

Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:icf:icfjbm:v:7:y:2008:i:2:p:75-82

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