Question

Write own wrods. Discuss the risks confronting an interest rate in today international market.

Write own wrods. Discuss the risks confronting an interest rate in today international market.

Homework Answers

Answer #1

Interest rate risk in International market- Some points are as following:

  1. Fluctuation in interest rates affects the cash flow and profit of the company when there in higher interest rates, company has to pay high interest amount and the same is paid out of the cash and profit so cash and profit come down.
  2. Interest rates affect the demand of financial alternatives available in the market, if banks charge higher interest rate, demand for loan will come down and borrowers will seek another cheaper finance option.
  3. Change in Interest rate of a country affect exchange rate of the country.
  4. Interest rates on bonds affects the prices of bonds if interest rates go up, price of bond comes down and vice versa.
  5. Higher interest rates discourage the consumption and encourages the savings as customer will not take more loans so the demand will come down.
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