economic factors Flashcards
what does high interest mean for the business?
low economic growth (less borrowing) slow inflation (good)
what does low interest rates mean for the business?
high economic growth ( good)
What happens if the £ falls in value
imports increase in cost
inflation goes up
who sets interest rates?
the bank of england and are the price of money (not the actual price its set by the bank)
how are businesses impacted by fluctuations in interest rates?
- borrowing
- customers demand / may have less disposable income
- suppliers borrow
why might high interest rates benefit someone abroad with money in UK banks?
they can earn interest off them.
things to think about in an essay for interest rates?
- how much are the IR likely to rise?
- the likelihood of it impacting the business/the? likelihood of them rising?
- who will benefit from them?
- will impact the ability to supply?
- will it impact the demand?
what may a rise in exchange rates cause?
- imports become cheaper
- exports become more expensive
what does it mean if exchange rates fall?
- exports become cheaper
- imports become more expensive
how dramatic is a change in exchange rate for a business?
- the exchange of currency occurs everyday and therefore exchange rates can vary on a daily basis
- the impact is USUALLY minor
- however if it was unexpected circumstances e.g. terrorist attack or war, then the effect would be felt more heavily.
how does the Bank of England prevent potentially damaging changes to the exchange rate?
- if the exchange rate was becoming too high they would sell more £ and buy more foreign currency
- if the exchange rate was too low then they would buy more £ and sell currencies.
what is meant by “hot money”?
-changes in IR that effects the exchange rate
- international firms look to put their money into banks with high IR so they get a bigger return
-
