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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » Dont have much hope on Interest rates ....!

Dont have much hope on Interest rates ....!

Go down  Message [Page 1 of 1]

Prince

Prince
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
How Interest Rates Affect The Stock Market


Interest rates. Most people pay attention to them, and they
can impact the stock market. But why? In this article, you will learn some of
the indirect links between interest
rates and the stock market
and how they might affect your life.

The Interest Rate
Essentially, interest is nothing more than the cost someone pays for the
use of someone else's money. Homeowners know this scenario quite intimately. They
have to use a bank's money, through a mortgage, to
purchase a home, and they have to pay the bank for the privilege. Credit card
users also know this scenario quite well - they borrow money for the short-term
in order to buy something right away. But when it comes to the stock market and
the impact of interest rates, the term usually refers to something other than
the above examples - although we will see that they are affected as well.

The interest rate that applies to investors is the Federal Reserve's federal
funds rate. This is the cost that banks are charged for borrowing money from
Federal Reserve banks. Why is this number so important? It is the way the Federal
Reserve
(the "Fed") attempts to control inflation. Inflation
is caused by too much money chasing too few goods (or too much demand for too
little supply), which causes prices to increase. By influencing the amount of
money available for purchasing goods, the Fed can control inflation. Other
countries' central banks do the same thing for the same reason.

Basically, by increasing the federal funds rate, the Fed attempts to lower the
supply of money by making it more expensive to obtain.

Effects of an Increase
When the Fed increases the federal funds rate, it does not have
an immediate impact on the stock market
. Instead, the increased
federal funds rate has a single direct effect - it becomes more expensive for
banks to borrow money from the Fed. Increases in the federal funds rate also
cause a ripple effect, however, and factors that influence both individuals and
businesses are affected.

The first indirect effect of an increased federal funds rate is that banks
increase the rates that they charge their customers to borrow money. Individuals
are affected through increases to credit card and mortgage interest rates,
especially if they carry a variable
interest rate
. This has the effect of decreasing the amount of money
consumers can spend. After all, people still have to pay the bills, and when
those bills become more expensive, households are left with less disposable
income. This means that people will spend less discretionary
money
, which will affect businesses' top and bottom lines (that is,
revenues and profits).


Interest rates. Most people pay attention to them, and they
can impact the stock market. But why? In this article, you will learn some of
the indirect links between interest
rates and the stock market
and how they might affect your life.

The Interest Rate
Essentially, interest is nothing more than the cost someone pays for the
use of someone else's money. Homeowners know this scenario quite intimately.
They have to use a bank's money, through a mortgage, to
purchase a home, and they have to pay the bank for the privilege. Credit card
users also know this scenario quite well - they borrow money for the short-term
in order to buy something right away. But when it comes to the stock market and
the impact of interest rates, the term usually refers to something other than
the above examples - although we will see that they are affected as well.

The interest rate that applies to investors is the Federal Reserve's federal
funds rate. This is the cost that banks are charged for borrowing money from
Federal Reserve banks. Why is this number so important? It is the way the Federal
Reserve
(the "Fed") attempts to control inflation. Inflation
is caused by too much money chasing too few goods (or too much demand for too
little supply), which causes prices to increase. By influencing the amount of
money available for purchasing goods, the Fed can control inflation. Other
countries' central banks do the same thing for the same reason.

Basically, by increasing the federal funds rate, the Fed attempts to lower the
supply of money by making it more expensive to obtain.

Effects of an Increase
When the Fed increases the federal funds rate, it does not have
an immediate impact on the stock market
. Instead, the increased
federal funds rate has a single direct effect - it becomes more expensive for
banks to borrow money from the Fed. Increases in the federal funds rate also
cause a ripple effect, however, and factors that influence both individuals and
businesses are affected.

The first indirect effect of an increased federal funds rate is that banks
increase the rates that they charge their customers to borrow money.
Individuals are affected through increases to credit card and mortgage interest
rates, especially if they carry a variable
interest rate
. This has the effect of decreasing the amount of money
consumers can spend. After all, people still have to pay the bills, and when
those bills become more expensive, households are left with less disposable
income. This means that people will spend less discretionary
money
, which will affect businesses' top and bottom lines (that is,
revenues and profits).


Source - Investopedia

Redbulls

Redbulls
Director - Equity Analytics
Director - Equity Analytics
Thanks mate.
Similar one in our forum.
http://forum.srilankaequity.com/t25012-how-interest-rates-affect-stock-market

Bond


Manager - Equity Analytics
Manager - Equity Analytics
Honestly why bother. If elections are held next year rates will have to stay the same

kukumarx


Manager - Equity Analytics
Manager - Equity Analytics
@Bond wrote:Honestly why bother. If elections are held next year rates will have to stay the same


Spoke to commercial bank this morning. They have been paying customers lower rates for a couple of month now. The rate at which they lend to customers will be lowered form next month

wiki


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
@Bond wrote:Honestly why bother. If elections are held next year rates will have to stay the same

After all we live in SL Very Happy

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