Wednesday, April 17, 2019
Business Math - advantages and disadvantages of higher interest rates Essay
Business Math - advantages and disadvantages of higher(prenominal) disport order on investments - Essay ExampleSecondly, increase in interest set has an effect to tie up debt. When interest rate rises, after bonds are issued, bond prices fall. Government can use this strategy to corrupt back bonds, hence retire debt and free gold in their budget to devote to other projects. pertain rate also affects risk aversion. When the interest rate is high, returns from normal savings cushions against riskier investments. The effect of this leads to more investors volition to work with these rank of return. Interest rates also affect equities, rising rate brings about higher espouseing costs, and this consequently impacts on the ability to spend. (Frankel, 2003)On the other hand, a disadvantage is that when interest rates are high, the following disadvantages are experienced. These occur in order to balance out the change. First, its expensive to borrow money, hence less money is avail able to buy goods. In effect, this will slow the growth rate of an economy. High interest rate can have effect on stock market, since less money is borrowed, the quantity of goods available from traders is less as they cannot afford to make more purchases. Loan borrowing by businesses is also reduced due to the cost incurred in borrowing. High interest rate also has a negative effect on credit cards, companies using credit cards will raise their rates respectively in order to balance with the interest rate changes (Frankel,
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