what is the impact of rising interest rates on future business performance?
- 1 decade agoFavorite Answer
This is a complex subject!
Rising interest rates also mean that customers (be they individuals or other businesses) face higher costs themselves in borrowing money. That can reduce their demand for products / services in general, thereby impacting on future business performance of those companies they deal with.
Higher rates can also help to slow down inflation ; inflation is bad for businesses as it sends confusing price signals. For the economy as a whole you could argue that the short term pain of higher interest rates means long term gain from lower inflation ; which will mean better business performance.
Also you shouldn't forget that not all companies (e.g. Microsoft) need to borrow money and higher interest rates, mean more interest income and higher profits !
- 1 decade ago
Rising interest rates increase the cost of borrowing to most entities. This is known as the 'Cost of Capital'. This additional cost translates into lower net income in the same way that any increasing cost does. That is one of the reasons why the Federal Reserve lowers interest rates in a declining economy, to help business by lowering one of their costs.
- Anonymous4 years ago
faster or later investment gets crowded out because of the fact there are greater efficient returns to be made protecting money. This has the end results of lowering overall performance, yet that's no longer continually a undesirable ingredient. If quotes are held too low for too long, too many doubtful investments take place (witness the internet bubble of the ninety's, the housing marketplace of previous due)