Question

What impact do Interest Rates have on making Financial Business Decisions?

Answer 1

Interest rates are an important decision making tool for business as they impact the consumer spending to a greater impact. Consumers are the lifeline for the business, so as more the consumer will spend the more is the scope for a company to grow, and vice versa.

When there is a high interest rate regime, consumers are are left with lesser of the disposable income and there will be lesser scope for a business to grow as consumer spending will be lesser at such situations. A business will not undertake any of the expansion projects because the chances of being successful are lower.

When there is environment of low interest rate, the consumer will spend more because they will be left with more of the disposable income and hence they will buy more products. At such Times the possibility of growth in market share is more because the consumer spending will grow so at such times the business will take up on more of new expansion projects as that will maximize the probability of getting more of the market share.

So interest rate are an inherent part of business and it must be factored upon while making investment related decisions.