What is Interest Rates?

Interest rate is how much interest is paid back by the borrowers for example if someone
burrows $1000 with an interest rate of 20% from the bank, The borrower will have to pay
the bank $1200 back. Different countries have different interest rates. They are
important because interest rates can provide foresight into the future of economic and
financial market activity.

Effect on high interest rates?

Effect on high interest rates on the consumer is that it increased the cost of borrowing
money, Higher mortgage interest payments, Increased cost bank loans, Banks may be
more willing lend and it is improved return for savers.
Effect on high interest rates on the business is that customers with depts. Have less
income to spend so they are paying more interest than buying the products so sales
falls as a result, Firm that borrow money from the bank will have higher costs because
they must now pay more interest, instead of spending it on R&D or Marketing.
Effect on high interest rates on the economy is that the currency will appreciate making
imports cheaper and exports more expensive, Inflation will tend to be lower, and
Unemployment could rise.

Effect on low interest rates?

Effect on low interest rates on the consumer is that the consumers will have lower cost
of borrowing money, there will be cheap mortagage payments, Asset prices could rise
because it is cheap to borrow, consumers will have more disposable income
Effect on low interest rates on the business is that business will be able to borrow huge
loans with low interest rates meaning they will be able to focus more money on
investment
Effect on low interest rates on the economy is that the currency will tend to depreciate
making imports more expensive and exports cheaper, Investment likely to be more,
should boost economy