Question

Identify three significant reasons why interest rate forecasts may be important in reaching investment conclusions in automobile industry in Malaysia.

Answer 1

We'll discuss as below with each side-headings as to point out three significant reasons why interest rate forecasts may be important in concluding the investment decision in Automobile Sector , Malaysia.

1. Provides Insight to the Future Economy: Interest rates influence on bond prices, borrowing rate over debentures, returns over bank savings, and other derivative instruments like swaps which deal with interest rates. Hence, this shows how much it can influence in the growth of market thus resulting into the forecast of the future economy based on it's performance. Interest rates provides the feature of being an economic indicator to have an idea of the economical activities and it's movements. And this influences over Automobile Industry too, as these automobile industries take huge debt and issue debentures in order to purchase the Equipment on large scale for the material production and consumption.Central Bank of Malaysia holds Interest rate of around 3% to ensure monetary sustainability of the nation.
2. Interest Rates Impacting over the Auto Industry: Maintaining the Inventory intellectually with flexibility and pace is at times challenging while financing could trouble the business as the interest rates keeps fluctuating in the current market industry. For the automobile Industry, increasing sales is crucial and higher dealerships takes the place in between the lending partners and the management. Tighter caps on credit and higher interest rates fixates business at times although lower interest rates can cause an advantage of getting more deals and spending and maintaining the current inventory.
3. Rise in the Interest Rates impacts Car Purchasing: Whenever Federal Reserve increases or decreases the interest rates, it keeps the projection analysis of car loan payment even oscillating as per every effect within. Average APR keeps fluctuating as per every new announcement made over the interest rate. This causes the slowness in repayment of loans from the buyers and eventually increase account's receivable period which delays the gains over the period. This won't look good in the Income statement of any automobile company. Interest rates impact everything from a credit card to a mortgage and hence it impacts the Car buying too.