Implications of Fall in Interest Rates

Fall in interest rates can have 02 major  implications on any organization:

Fall in investment revenue-

Any organization has additional  income sources by the interest income received on the investments they have made on financial assets such as shares of other organizations, bonds an bills utilizing the retained profits they have. When the interest falls bank will receive less amount ad dividend and interest income from above mentioned financial assets. This will result a drastic fall in the revenue earned. But in turn when the interest rates are low firms will offer financial assets at a lower price. The organization could purchase those assets at a lower price now and sell them at higher price later and make capital gains in the future.

Reduced finance cost-

Many organizations will have debt incurred such as debentures, corporate bonds and loans obtained from banks. For these loans obtained firm has to pay interest to the loan providers and that the cost incurred to pay those interest loan providers is called the finance cost to the organization. When the general interest rates fall the organization has to pay less amount as the interest and this reduces the total finance cost of the organization. Fall in interest rates encourages firms to obtain more loans and expand their businesses.

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