Question

The name balance-sheet channel of monetary policy implies that monetary policy has to impact categories on a firm's balance sheet. Explain how the balance sheet of a firm will be impacted by an increase in interest rates.

Answer 1

Impact of Increase in interest rates on the Balance Sheet:

Once the interest rates are increasing the money payable to the lender will become increase with unpaid interest and accrued balances

rising interest rates will result in decreasing the profits of the firm so the shareholder's equity might be affected.

Companies won't make any new borrowings from the banks and institutions due to higher interest rates so the current liabilities will be continued.

due to increasing interest rates the finance costs borned by the individuals will become financially burden. so ultimately there is a downtrend in demand for goods/services and this would affect the revenue of the firm.