Question

#5

the Greate nd discount- to explain close to high even lain why a d more to ar 2015. at a pre- 4. During the Great Depression of the nal interest rates were close to zero. Explain how real interest rates could be very high even though nominal interest rates were very low. (Hint: Prices fell during parts of the Great Depression.) 5. Assume that after you graduate, you get a job as the chief financial officer of a small company. Explain why being able to forecast the direction of interest

Answer 1

#5) Interest rates can effect business in many ways, however for a small companies the immediate effect can be on Business planning, Cash Flow, Customer Spending & Saving.

Business Planning = increase in interest rate can have impact on ability to grow business because business owners with fixed interest rate will not be effected immediately with interest rate rise, when interest rate increase and company owners having fluctuating interest rate may find difficult to repay loans, higher loan payment may lead to reduction in profitability.

Cash Flow = small business tend to operate with limited cash flow, it will put extra burden or need more cash to repay loans due to interest rate increase for loans on fluctuating rate.

Spending & Savings = Customers spending habits will have impact, when customers have to pay higher interest rate on there personal loans, mortgages loans etc, will have less disposable income left to buy other good and services.

Impact to Investment Banker's = Interest rate will have high impact on Financial products, changes in interest rate will change market value of Portfolio's, products like Bonds, Shares etc will have impact on market price. it causes to look for investment that will sure return cash Flow for capital invested.