Intrest Rate Report Essay Example | Topics and Well Written Essays - 1000 words

Intrest Rate Report - Essay Example When interest rates are reduced the cost of capital declines and investors will be more willing to invest and therefore this will increase the level of investment in the organisation. High interest rates also mean that loans are repaid at higher rates, many consumers finance their purchases financed using borrowed funds from banks and for this reason businesses may experience a reduction in their sales level when interest rates are increased, therefore businesses will tend to hold less inventory when interest rates are increased especially when stocks are purchased using borrowed money from financial institutions. A business will finance by equity and by debt, when the cost of debt rises as interest rates increase then the decision by business owners will be to finance through equity. For this reason therefore interest rates will affect the decisions made a business on how to raise capital for expansion purposes. The cost of operating businesses increases when interest rates are increased and the cost of operating businesses will decline when interest rates are lowered. ... Current Yield curve: The yield curve is a curve that depicts the relationship between interest rates and date to maturity of securities. Using data from the US treasury website the yield curve as of 21st January 2009 is as follows: From the above chart that depict the yield curve it is evident that the yield curve is an upward sloping curve. This means that if a business borrows for a period of 7 years then the higher will be the interest paid to the financial lender. Therefore the lower the borrowing period the lower the interest paid. Therefore business will opt to borrow for a short period of time to reduce the cost of capital. On the other hand it is also means that the more an investor or institution holds financial instruments such as bonds then the higher will be the returns. Interest rates and customer demand at big drive auto: An increase in the level of interest rates in the economy will affect the level of sales at big drive auto. This is due to the fact that the cost of borrowed funds rise and consumers are less likely to borrow funds to fianc vehicle purchases. For this reason the sales levels are likely to decline. The other reason why sales levels may decline is the fact that consumers may prefer to save rather than spend, high interest rates means that consumer savings will earn more in the economy and therefore a consumer will prefer to save or even invest in other attractive financial instruments such as stocks and bonds. If interest rates are to be reduced the cost of borrowed funds declines and more consumers are expected to be encouraged to borrow more form financial institutions to finance car purchases, therefore the demand for products at big drive auto will increase when interest rates

Principles of Economics Research Paper Example | Topics and Well Written Essays - 1500 words

Principles of Economics - Research Paper Example sgruntling customers, suppose that the company may introduce a different type of programming that is cheaper for the company to provide yet is equally appealing to customers. Explain what would be the effects of this action. The law of demand states that, ceteris paribas, the higher the price of a commodity, the less the demand will be. On the other hand, the law of supply states that, all factors being constant, sellers are more willing to supply goods at a higher price than at a lower price. This theoretical point at which sellers are willing to supply goods and buyers are getting all the commodities they are demanding is referred to as the equilibrium. The equilibrium is depicted in the figure below: Figure 1: Market equilibrium chart (â€Å"Economics Basics: Demand and Supply,† 2011) If the government make a price ceiling law on cable TV that sets the price below the current equilibrium price two things will happen immediately: (1) cable TV sellers will find the business less attractive because of increased possibility of lower revenues and thus they will lower their supply. (2) Consumers will find the lower prices attractive and thus they will increase their consumption and demand for cable TV. After some duration, the huge consumer demand and low supply will cause consumers to compete for the few cable TVs available. This is depicted below: Figure 2: Effect of price ceiling (Taylor, 2006) In a free market economy, the consumer competition for cable TVs will push the prices up, which will make sellers want to supply more and hence bring the price closer to its equilibrium. However, in this case, the price ceiling prevents suppliers from increasing the supply because of the low marginal benefits compared to marginal cost of supplying cable TVs. This eventually... The rationale for releasing the new guidelines to be used by the Department of Justice and the Federal Trade Commission for evaluating proposed mergers is to provide more clarity and transparency to businesses seeking to engage in mergers and acquisitions. This way business can tell beforehand whether they will be successful with their application or not. Additionally, the new Guidelines take into account changes that have taken place in the legal and economic arenas since the last revision in 1992. From the guidelines one thing that stands out is the Department of Justice’s and the Federal Trade Commission’s focus on protecting competition and innovation within the American business sector. Mergers and acquisitions that may substantially lower competition, or to tend to create a monopoly will be rejected. So too will those M&As that are viewed as done to kill innovation. Some of the major implications of these guidelines are that: (1) it will enable companies save on r esources that they may have wasted on a merger or acquisition that ends up being disapproved; and (2) it provides the legal fraternity with more clear guidelines for those who would like to seek legal redress