How do interest rates affect a business?

What will be an ideal response?


A key macroeconomic variable for managers to track is interest rates-the amount that savers are paid for use of their money and the amount that borrowers pay for that use. When credit is cheap (because interest rates are low), consumers buy homes, automobiles, computers, and even vacations on credit; in turn, all of this demand fuels economic growth. During periods of low interest rates, firms can easily borrow money to finance future growth. Borrowing at lower rates lowers the cost of capital and enhances a firm's competitiveness. These effects reverse, however, when interest rates are high. Consumer demand slows down, credit is harder to come by, and firms find it more difficult to borrow money to support operations and might defer investments.

Business

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