Question

3-4 There are four countries (Japan, Sweden, Denmark and Switzerland) have negative interest rates. What could be the expectations/ motivations to drop interest rate below zero? Mention how it will affect the country’s growth and how it affects each country individually.

Could you please give me a summary of the solution to each question so that I may expand on this. It is for my current job

Answer 1

The main motivation for any country to drop the interest rate below zero could be to encourage people and businesses to take loans for business or spending on goods, improving their lifestyle.
Some states in the US give incentives for people to come and settle in those states so that those states will grow and have enough people to develop it. This is a similar concept of keeping the interest rates below zero.

Some countries implement negative interest rates as a temporary solution to deal with financial crisis.

The other reason could also be that the banks do not want people to save more and keep cash in banks as it might be more expensive for them to safeguard it, infact they want people to spend more in their economy, more cash will be flowing in the market.

It is also a measure of retaining their country people and attracting more businesses to come there.

Japan in particular has a lot of surplus cash, it gives loans to developing countries, but there is always a risk of those countries not being able to pay back and could turn out to be a bad debt. Instead if they give out loans to their own people in Japan, even at a negative rate the reliability is higher.

Sweden, Denmark, Switzerland are reducing their interest rate below zero on mortgage to encourage real estate going up. It is infact a way of the government handing out cash(subsidy) but instead they cutting down the amount to be repaid.

It is a new concept in general, so this is all I have right now. Hope this helps.