Financial Management There Are Many Essay

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For example, if spending is encouraged, in the form of lower interest rates, then inflation is likely to grow, at least in the short-term, before the government has a chance to regulate this problem and move interest rates in a different direction. With higher inflation, the purchasing power of the individuals is affected, which might, in turn, lead to a decrease in aggregate demand over time.

At the same time, interest rates are also important because of the impact they can have on other rates, such as the currency exchange rate. If the Central Bank increases the interest rate, then investors may move towards that particular currency that offers a higher return on their investment (due to the higher interest rate).

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They may decide to sell the currency or currencies they are investing in at the present time in order to move towards this more profitable currency.

The fact that the financial markets (and economies in general) are globalized means that the effects of any national changes, such as the change in interest rate, can be felt at an international level in a significant way. This also means that the importance of interest rates in the economy is amplified......

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