Future Business Leaders of America (FBLA) Agribusiness Practice Test

Which statement accurately describes the relationship between interest and lending?

1. Interest is a fee charged for deposit accounts

2. Interest is a reward for safe investments

3. Interest is paid to the lender for the use of their money

4. Interest is only applicable to loans from banks

The correct answer is: Interest is paid to the lender for the use of their money

The statement accurately describing the relationship between interest and lending is that interest is paid to the lender for the use of their money. In the context of lending, interest serves as compensation for the lender, who forgoes the opportunity to use that money for other purposes. When a borrower takes out a loan, they essentially rent or utilize funds that they do not currently possess, and in return, they agree to pay a percentage of that borrowed amount as interest. This fee reflects both the risk taken by the lender and the cost of borrowing money. In contrast, other options do not capture this core concept of interest in relation to lending accurately. While interest can also relate to deposit accounts or serve different roles in investments, these concepts are distinct from the basic lender-borrower relationship defined by the payment of interest for the use of borrowed funds. Additionally, interest is applicable in many lending scenarios, not strictly limited to loans from banks, so that option does not accurately represent the broad application of interest in finance.