Interest Rates

INTEREST RATES 9

InterestRates

InterestRates

Abusiness environment is a complex setting that accommodates peoplewho play different roles that facilitate the success of the entireprocess. These enterprises operate inprofit, loss,and interest with the rate at which the three entities occur beingdifferent. Thestrengthof currency regardingexchange rate and the intensity of transactions are also instrumentalin ensuring success in a business environment. (Baldwin,Wyplosz,and Wyplosz,2006). Regardinga business environment, this analysis focuses on the role played byinvestors and policymakers in weighing out, balancing andestablishing key components in an economic environment (Birkland,2014).

PolicyMakers

Theyare professionals who play significantdecision-makingroles in organizations in relationship to the economy and the firm’slong-termgoals. Examples include executives, management team, and board ofdirectors. Their positionsof responsibilityshould occur in a very careful manner to prevent thetakingof wrong moves. They hold serious discussions and explore all theimpacts that a decision might have on the economy or thestatusof an organizationto achieve the aims.Through research and consultation, they gather relevant informationand from it design policies that meet the market demands.

Investors

Mostpeople always relate investors to the stock market. Concerning aneconomic zone and the business environment, they are individuals whohave a share in the market. They play a critical role in businessconsidering that the resources which theygenerate facilitatethe running of the economy.They purchase shares from companies that display a future potentialin the market. Moreover, before pumping resources into abusiness,they look at the company’s success. That occursthrough analyzing the position the firm has in the market and historyregardingeconomic progress. Through the analyzing of financial statements anda check on the moderntrends, investors make decisions on whether it is appropriate toinvest in a firm.

Investorswork together with policy makers from different firms tohelp determine the best organizations to invest resources. Therefore,it is paramount that policy makers observe business ethics because bydoing so, they are likely to attract the best investors.

TheMarket Report

Theanalysis of a market is imperativeforinvestors and policy makerstomake their best decisions. Therefore, to ensure that thedecision-makingprocessis effective, a market report is developed and analyzed. A marketreport explores all the components of a bazaar and also draws out thefindings. All these resultsbasedon the structure, operations and the potential that a market systemhas towards the economic success. Additionally, all market reportsentail the findings for a particularperiod of the economy and therefore, any report requires immediateanalysis and procession of other plans. Moreover, by analyzing amarket report, the policy makers generate good decisions andapproaches towards improving the system. Therefore, a market reportcontains

Descriptionof the market system

Marketsexhibit differences regardingoperations and components. A market report will describe thedifferences in the system and how each of them works. Moreover, byoutlining all that entails the market, the report gives investors andpolicy makers an insight intothe best reforms and economic areas of significantvalue to the niche.

Data

Draftingof a market report entirely depends on data collection. Data is acritical toolinthe market systems because it outlines the numerical status of thebusiness system. For instance, data on population gives informationon how the market system is likely to succeed regarding customerpresence. A market with many customers is likely to attract morecapital and more business opportunities. Relevant data on the capitalstatus of a market is also instrumental in helping policy makers tocome up with decisions on how the market system can generate maximumprofit.

Productsin the market

Investorsare likely to have no information on what the market entailsregardingproducts. Thegoodmarket report provides these essentials,and by doing so, it gives investors the information they need in thekind of goodsthey should invest.By assessing the products in the market, the policy makers determinethe best avenues to invest regarding how each of the products fairson in the market in consideration to sales.

Markettrends

Marketsarecharacterizedby changing systems and fluctuations inoperation.The probability of a market to maintain a highrateof the transactionsregardingsales and income is very low. The scenario is likely to be influencedby population patterns, climatic factors, and the stability of aneconomy. Most economies are wavering,and there is a likelihood of recording low sales at aparticularperiod of the year.

MarketPotential

Allmarkets aim at expansion over time. A market that isstagnantin regardstogrowth is likely to have low rates of investment, product demand andsupply. Therefore, understanding the market is very critical inmaking investment decisions and outlining of policies. Policy makersrely on the market potential information to make long-termdecisions concerning the economy. Moreover, they use this informationto identify loopholes or new opportunities in the market. Investorsare likely to be attracted by markets showing high potentialregardinggrowth and profitability. Moreover, they are attracted to thesesystems because the long runbenefits are wortha risk. However, in studying market potential, considering the pastera and history of how the market grew is critical. Ultimately,making best decisions regardingpotential has long-termbenefits to the entire economic circle.

Roleof Interest ratesin an Economy

Aneconomic system considersinterest as one of its most important aspects.The highimpact on the lending and borrowing of resources in a market playskey role in the economic model. The rates of interest are meant tobalance the economic status of an environment and ultimatelybalancing the total returns (Brigo&ampMercurio,2007). Additionally, through scrutinizing interest, future insightson the economy and market systems are provided. Corporate and otherfinancial institutions play a critical role in balancing rates ofinterest. They provide financial aid to people and investors willingto be part of the market system. Different types and levels ofinterest rates exist, and each of them impacts differently on theeconomy.

Viewson the rate of interest

Economists

Theprice paid by the borrower to any lender determines the rate ofinterest. Fisher, aprofessor,argues that people are involved in financial debts for differentreasons. He claimsthat people either save or consume their money and theirgoals in life influence these actions.Most individualswho save money end up building more resources and growingeconomically with time. Peoplewith high income are likely to borrow more because of their savingpower. Therefore in an economic environment where many borrowers takelarge sums of loans, the interest rate may be high (Brigo&ampMercurio,2007).

Investors

Investorsin an economic system are more concerned with stability and making aprofit.Some of these financiers require funding from corporate to startupfirms and other profit generating avenues. Before an investoraccesses funding, he or she checks in the rate of interest thank thebank charges. High feesfrom banks are likely to attract few customers because most of themcannot afford to pay high rates of loan payment.

Banks

Thecentral bank dictates how capital flows in an economy. The supply ofmoney in a country is maintained at equilibrium in that the resourcesbalance the monetary value. Excess release of money to an economywill ultimately deplete goods because most people have money topurchase what they desire. By keeping it balanced, the economyoperates ondemandand supply system. Therefore by keeping these entities incheck,the banks candetermine interest charges depending on how businesses flow regardingprofits and input

Effectsof Interest rates on the economy

Theeconomy is breathing, interconnected and living systems that entirelydepends on the policies put in place. When banks alter the rates atwhich individuals and corporate borrow money, the effects directlyaffect the economy. If the central banks lower the interest value inan economy, banks borrow less which directly leads to customersaccessing loans at lower rates. Afterthat,the loans are attractive and competitive meaning the economy islikely to improve. In this situationthe markets shares and sizes increase because there is a supplyof capital to take the available business opportunities(Brigo&ampMercurio,2007). However, high rates of interest attract few borrowers leadingto areducedmarket system. Investors are likely to be attracted to affordablebenefitsbecause it captures the entire market. High interestsare likelyto attract the capable portion of the population, which can lead toinvestors shying off.

Byfocusing on low-interest rates,the economy is likely to respond in different ways. As statedearlier, low-interestrates encourage borrowing, spending,and investment. All these entities take place separately but havetotal influence on the economy. On the positive side, lower benefitsmay result in economic growth and high aggregate demand. (Hördahl&amp Tristani,2007).

Roleof policy makers in facilitating economic growth

Failedeconomies have blamed decisionmakers for giving wrong approaches towards the best directions totake. Policymakersplay a critical role in determining the outcomes survival and futurestatus of an economy. Therefore, the decisions they draft areregardedas the fundamentals in the running of economies.The government is instrumental in ensuring economic growth becausethey appoint the policy makers. However, to succeed in policy making,individuals selected for these roles must show competence andknowledge in their line of duty. That is only possible if experiencedpersonnel arechosenfor the particularfunctions.Afterward, they can implement the following changes that willultimately lead to economic growth.

SettingInterest Rates

Macroeconomicfactors like interest influence the larger economy of a state.Therefore, policymakersshould focus on identifying the key factors that affect interests. Bytotal comparison on how the different rates of interest affected theeconomy in the past, they can come up with better figures regardinginterest. If optimum interests’ rates arechosen,the likelihood of investors, customers, banks and the entire businessenvironment achieving success is very high. Additionally, the movewill balance the country’s economic growth preventing inflationboth at local and international trade setups within a country(Hördahl&ampTristani,2012). Moreover, taxation should be the financialtool that these policy makers use. It is applicable in that totalpopulation of people paying taxes is known. Therefore, the moveenables prediction of the amount of revenue generated throughtaxation. From these figures, the policy makers can balance outimportant factors in the economy using the estimated amount of incomelikely to trickle into the accounts from taxation.

Howevermany issues arise on whether the policymakersshould spearhead the economic development plans. A notion is that thegovernment should play a central role in making and managing offinancialschemes.Forinstance,economists argue that the government should not take part inprecedingthe firms that fail to meet the expectations in an economy. However,others argue that not involving the government with policy making andcontrol of the economy is a destructive process. More damages arelikely to occur if the status of most firms remains unchecked.Policymaking is the only solution that can facilitate ahealthyeconomy. It is only possible if the right approaches are taken ratherthan implementing things that are unlikely to take shape. Enoughresources to govern the running of the economy are is also criticalconserving that soundeconomic policies only operate when enough capital is present.However, the process should involve all the stakeholders in themarket,and by doing so, the economy will improve.

References

Baldwin,R. E., Wyplosz, C., &amp Wyplosz, C. (2006).&nbspTheeconomics of European integration&nbsp(Vol.2). London: McGraw-Hill.

Birkland,T. A. (2014).&nbspAnintroduction to the policy process: Theories, concepts, and models of

publicpolicy making.London: Routledge.

Brigo,D., &amp Mercurio, F. (2007).&nbspInterestrate modelstheoryand practice: with a smile,inflation,and credit.Springer Science &amp Business Media.

Hördahl,P., &amp Tristani, O. (2012). Inflationrisks premia in the term structure of interest rates.&nbspJournalof the European Economic Association,&nbsp10(3),634-657.Retrieved fromhttp://onlinelibrary.wiley.com/doi/10.1111/j.1542-4774.2012.01067.x/abstract