Question

Recently the Fed has been watched carefully on their decision on interest rates in the US. Discuss and provide an example of interest rate risk to a MNC given an example of what you think the effect will be on an increase or decrease of rates and why? Provide a real example on this topic and your opinion. Also briefly mention the domestic and global effects of rate changes and why?

Answer 1

The Fed lower Interest rate always try to stimulate economic growth . Lower Interest rate mean lower borrowing financial cost which definitely boost up borrowings and Investing .Sometime too low rate , with inflation reduce purchasing power

The federal fund rate is a Monetary Policy tool used to achieve the fed Goal of proce stability , with low inflation and sustainable economic growth . Definitely changing the federal fund rate influence the money supply

Normally to maintain proper economic growth , rather stimulate economic growth, the FED lower Interest rate

The fed target rate is the basis for bank to bank Lending. The rate charge by Bank to their most corporate customer is known as Prime Lending rate. Prime is pegged by 3% above the target rate

A rate cut definitely provide more money to customer

Definitely rate cut also help in case of Mortgage . In case of Fixed rate Mortgage rate which are based on Long term rates which do not fluctuate as much as short term rate

Rate cut more beneficial in case of Adjusted Mortgage rate ( AMR) and helpful for Homeowner

In other financial Instrument like Credit card + Savings account have impact of Interest rate change .

Fed has take decision to further reduction in rate which will help to keep the economy strong in the face of global developments and to provide some insurance against ongoing risk

As per FED , they highlighted that present economy is doing well like robust consumer spending , strength home sales and asset prices are alsos healthy

Fed official felt that a round if Insurance rate cut was appropriate to guard against a worse outcome .The fed cut rate in July and again in September and doing so encourage business and consumers with more affordable borrowing cost