Question

How will a decrease in interest rates impact your investment choices and decisions?

Answer 1

When there will be decrease in interest rate investment generally rises. Because of cost of borrowing declines. Now this decline in interest will have an impact on bond market, insurance market and in financial market or money market. If interest rate decrease bond prices will go up because value of bond will rise. So if interest rate decline people will invest in bond because of getting more return due to more valuation of bond.

Now we will concentrate on insurance market or insurance products, if interest rate declines then it implies the insurance products will be less attractive. Because there is so many products which are offered through insurance market connected with interest rate and it is positively connected. If interest rate goes up then this return goes up and if interest rate falls then the return from this insurance product falls because of less yield. Similarly if interest rate falls a person will be affected by the insurance products because on the expect that it will give less return in future. The insurance products which are invested in fixed securities it will be less valuable with decrease in interest rate.

So decrease in interest rate will reduce the valuation of insurance products so fall in interest rate will have negative impact on investment on insurance products.