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The Impact of Interest Rates

The chief goal of the United States Federal Reserve Board is to keep the country’s economy running smoothly. When the economy is doing well and going through boom cycles, the Federal Reserve will typically raise interest rates to keep the economy under control. This makes borrowing money and opening lines of credit unattractive to most, which will help lower prices. By being aware of the relationships between the stock market, interest rates and the overall economy, business professionals can understand the outcomes of higher interest rates for businesses and consumers.

An online Bachelor of Arts in Business Administration (B.B.A.) with a concentration in Finance from Avila University can help students understand investments and how financial transactions boost profitability while also developing analytical skills for a career in finance. Students in this online program will gain knowledge of financial markets, strategies and concepts. By gaining the essential tools needed to excel in occupations such as credit analysis, financial analysis and investor relations, students can take the important steps to launch their careers.

How Interest Rates Influence the Economy

Interest rates can affect the economy positively and negatively. When the Federal Reserve Board raises and lowers interest rates, it’s a commentary on the state of the economy. When they view the economy as overly strong, they will raise interest rates, or the cost of credit.

Higher interest rates make taking out a loan less appealing to both businesses and individual consumers due to the increased interest that will increase monthly payments. Large purchases, like homes or cars, are postponed until interest rates drop. Projects that need financing to complete, such as business loans or home improvement loans, are delayed since higher interest rates mean increased borrowing costs. This process intends to lessen the amount of money in circulation and reduce inflation.

On the other hand, lowering interest rates can make borrowing money less expensive and encourage spending, investments and growth, but it can also lead to issues with inflation. Aside from personal and business loans, interest rates impact mortgages, credit cards, auto loans, student loans and the stock and bond markets. While the change in interest rates can typically take at least 12 months to affect the overall economy, the impact on the stock market is often more immediate.

The higher the federal funds rate, or interest rate, the more negative the impact on the stock market. When the cost of doing business rises, the overall profit and revenue for private and public companies go down, influencing the stock values and growth rate for businesses nationwide. Understanding how interest rates, the economy and the stock market are intertwined changes how people and businesses invest their money. When business professionals understand the ripple effect that raising and lowering interest rates has throughout the economy, they can make informed financial decisions.

Avila’s Online Bachelor of Arts in Business Administration With a Concentration in Finance Program

Avila University’s online B.B.A. in Finance program teaches students to identify and analyze financial challenges and strategies while developing a broad-based business foundation suitable for multiple career opportunities. With program coursework and finance concentration courses such as Money and Banking, Investments, Financial Policy and Derivatives, students will learn the principles regarding interest rates, money, financial markets, investment theories and methods, the practice of financial management and the study of the major types of derivative contracts and valuation.

Learn more about Avila University’s online B.B.A. with a concentration in Finance program.

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