Advanced English Dialogue for Business – Exact interest

Listen to a Business English Dialogue About Exact interest

Kennedy: Hi Hannah, have you heard of “exact interest” in finance?

Hannah: No, I haven’t. What is it?

Kennedy: Exact interest is when interest is calculated based on the exact number of days between two dates, rather than using an estimated number of days in a month or year.

Hannah: Oh, I see. So, it’s a more precise way of calculating interest?

Kennedy: Yes, that’s right. It ensures that interest calculations are more accurate and reflect the actual time period that the funds are borrowed or invested.

Hannah: That sounds useful. Are there any specific situations where exact interest is commonly used?

Kennedy: Exact interest is commonly used in financial products like short-term loans, bonds, or certain types of savings accounts where interest accrues daily or on irregular payment schedules.

Hannah: I see. How does exact interest differ from simple interest?

Kennedy: Simple interest is calculated based on the principal amount and the interest rate over a specified period, while exact interest considers the actual number of days between transactions, providing a more precise calculation.

Hannah: Got it. Are there any drawbacks to using exact interest?

Kennedy: One potential drawback is that it may require more complex calculations and systems to implement compared to simpler interest calculation methods.

Hannah: Thanks for explaining, Kennedy. Exact interest seems like a useful tool for ensuring accurate interest calculations.

Kennedy: You’re welcome, Hannah. It’s an important concept for financial institutions and individuals to understand when managing their finances.