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Understanding the Effects of Interest Rate Changes  

 

Mostly people are unaware of the fact that the interest rates can affect the stock market. Essentially, interest is nothing more than the amounts you pay for using someone’s money. This idea goes well in case of small families but the business people should not opt for this idea.

 

The Interest Rate

Usually, the friends or family members use someone’s cheque book, credit card, or ATM card to buy a house, for shopping, or to perform another similar task. In this situation, they are borrowing money for a couple of days, weeks, or months. But when it comes to the stock markets, the interest rates change, and new business people should never go with this option. The interest rates that apply to an investor are the Federal Reserve’s funds rates. This is what the banks are charged to borrow money from Federal Reserve banks. The aim of the Federal Reserve is to control the inflations. The inflation is referred to as spending huge money for buying a few things. Sometimes the Federal Reserve increases the interest rate to reduce the number of businessmen who borrow things. It also intends to lower the supply of money by making it an expensive option to go with.

 

Effects of interest rate changes

The interest rate changes leave great impact on the stock market. The federal funds become a costly option for banks for borrowing money. Thus, they stop doing so, and this eventually leaves great impact on both individuals and businesses.

 

Varying interest rates

The first effect of increased interest rates is that the banks charge even more to their customers for borrowing money. Individuals are affected because of this as their credit card and mortgage interest values tremendously increase.

 

Affecting the businesses

In one way or the other, this affects the businesses. The businessmen have to borrow money and the terms are not suitable which leaves them suffering big time.

 

The behavior of consumers

The behavior of consumers certainly changes with the fluctuating interest rates. This eventually can lead to cutting the growth of a firm back and it might start making lesser than expected profit.

 

Keeping the above things in mind, it is needed that the federal government and the banks should keep the interest rates at nominal level. Otherwise, it will lead the individuals and companies to suffer from profit losses.

 

Understanding the Effects of Interest Rate Changes   was last modified: July 18th, 2016 by Tammy Richards

Author:

Finance Expert, Writer, Entrepreneur

Tammy Richards is a passionate finance expert who is also a writer and business owner. With over 10 years of experience as a finance expert, Tammy wants... read more

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