5 Areas Where Interest Rates Matter!
Although we hear, plenty of opinions, about, interest rates, and their trends, and impacts, only a few people seem to know, the importance, and importance/ relevance, of those rates, in several areas of our lives! After, many decades of involvement, in political campaigns, leadership, leadership training/ planning, realty, financial sales and consulting, etc, I strongly believed, that one benefits, by understanding, more about these, and the way they affect, many things, in our lives! Whether, associated with personal, organizational, and/ or, public finance/ spending, home ownership and related costs, credit-related issues, business matters, stock and bond pricing, etc, interest rates, truly, significantly, matter! With, that in mind, this text will try to, briefly, consider, examine, review, and discuss, 5 these areas, and the way the value – of – money, makes a major difference.
1. Bond prices and interest rates:
The price of a bond, generally, is inverse – associated with interest rates! When these rates go down, prices, rise, and once they go up, the inverse occurs! Bonds have, what’s known, as, a par – value, which is the price, paid, at the top of the term. Markets usually set these at 100, which represents $1,000 per bond, at maturity. However, during the amount, the pricing can rise or fall, which impacts, liquidity-related issues!
2. Mortgage rates:
For the previous few years, we’ve got been witnessing and experiencing, record – low, mortgage interest rates, which have helped the general, real estate/ housing market, especially, in terms of, pricing increases! In most areas of this country, we are seeing, home prices, at their highest levels, ever, by a major, dramatic amount! When this rate, is low, a vendee is ready to shop for, more – houses – for – his – bucks, because, his monthly payments, are so low! Consider, however, what may well be the potential ramifications, and impacts, when these rates, will, inevitably, rise?
3. Consumer credit:
Low costs of borrowing, help the car industry, in terms of consumer financing, etc! Although not the maximum amount as other vehicles, rates on MasterCard debit, are lower, and there are often, shorter – term, promotions, offering deals! However, since, most of those are variable, and based, on some index, etc, what happens, when there’s a rise, in this?
4. Business borrowing:
Another area affected, is the business cost of borrowing! Presently, they need access, to relatively, cheap – money, which helps in reducing the prices of borrowing, overall operations, purchasing inventory, etc. But, what happens, when this, ticks – up?
5. Impacts on exchange prices:
For some time, because bonds have paid so little, in terms of dividends, etc, many have considered, the stock exchange, the sole game, in-town! additionally, many corporations, have seemed, better – off, than they probably are, and we have witnessed, a higher, ratio of costs to profits, than in the past! How long will this last? How high can it go? Many factors impact these issues, especially: Actual and/ or, perceived inflation; consumer confidence; politics/ government actions/ the FRS, etc. The more you recognize and understand, hopefully, the better – prepared, you’ll be!