2015年6月16日星期二

Interest Rate——利率/利息率

PS: Sorry for the poor English language.

As we know that the interest rate is the extra charge which follow the rate of institution charge on the principal borrowed. Borrower should pay the amount of interest in every month for the borrowed amount of money.


From the graph above, we can see that the interest rate of Malaysia had the highest record of 3.50% in year 2006 to 2008 while the lowest record is 2% in year 2009. Latest interest rate is 3.25% in year 2014. In addition, many areas influenced by the fluctuation of interest rate, there are cost of borrowing, company, currency and export.

From this paragraph, I will explain the effect of increased interest rate on the area mentioned above. The cost of borrowing will increased due to the rate of borrowed is increased and the payment of interest on the principal borrowed is rises. For example, current 3% of interest rate of borrowing is moving up to 4%, so the different of 1% is the extra amount of interest we need to afford for the increased of interest rate.

Next, the company's profitability will fall because the interest needed to pay for the bank is increased, this will influenced the cash flow of company and make the company facing the poor performance for the quarter year. Once the profitability of company is descend, the share price of company will drop due to the percent of growth in earning is unmatched with the forecast result. In long term, the stock market maybe going bearish because lot of investor selling out the stock on hand.

Furthermore, the local currency will increased because the rate of deposit in bank is increased. This will attract the foreign investor to make deposit by using their currency. Inflow money from foreign country into local country will help the local currency raised because the demand of local currency is increasing. Lot institutions also make profit through the arbitrage process in the Forex market.

In addition, the export of country will decreasing because the effect of local currency increased and make the local product expensive compared with export country. The cost of exported product to foreign country will increasing and make the international trade going deficit. A deficit number of international trade which is amount of export is less than the import will bring the Gross Domestic Product (GDP) has a slower growth rate. This is giving a big impact to the local economy.

本文只供参考。共勉之。

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