What is the impact of rising interests on future business performance?

Answer 1

rising interest rates make it more expensive for businesses to borrow money.

Many companies issue IOUs in the form of bonds in order to raise capital to conduct business (build buildings, buy raw materials, etc...). When interest rates rise, it makes it more expensive for companies to do this.

Besides bonds, increasing interest rates make it more expensive for businesses to borrow money for cars, purchase inventory on credit, and other smaller expenditures.

To make it worse, when interest rates go up, it makes the cost of doing business more expensive for everyone.

So not only does a business have to deal with increased costs of borrowing, but their suppliers do as well. So a business' suppliers must absorb the increased costs (which lowers profits) or pass it on to theri customer (another business lets say).

So a business might have to purchase supplies at an increased cost. In addition, they have to deal with their increased costs. These costs must either be absorbed again (lower profits) or passed on to their consumer (higher prices).

It kid of creates a snowball effect.

Answer 2

At some point investment gets crowded out because there are better returns to be made holding cash. This has the effect of reducing performance, but that is not always a bad thing. If rates are held too low for too long, too many dubious investments occur (witness the internet bubble of the 90's, the housing market of late)

Answer 3

Rising interest rates means it costs more to borrow money. The low interest rates of the past few years has seen a boom in the real estate market. Rising rates will likely put a damper on borrowing in general and slow the ecomomy overall.

Answer 4

transforming into quotes of interest develop the fee of borrowing to maximum entities. that's basic because of the fact the 'fee of Capital'. this extra fee interprets into decrease internet earnings interior the comparable way that any increasing fee does. it relatively is between the motives why the Federal Reserve lowers quotes of interest in a declining financial device, to help employer by lowering one in all their expenditures.