The Effect Of Interest Rates On Malaysian Markets And Economy

1104 words - 4 pages

Changes in interest rates can have both positive and negative effects on the Malaysian markets. When the Bank Negara changes the rate at which banks borrow money, this has a ripple effect across the entire economy. Interest rates can have an effect on the economy as a whole, the stock and bond markets, inflation and recessions.1.How Interest can affect Malaysian consumer's spendingWith every loan, there is a possibility that the borrower will not repay the money. To compensate lenders for that risk, there must be a reward. Interest is the amount of money that lenders earn when they make a loan that the borrower repays, and the interest rate is the percentage of the loan amount that the lender charges to lend money.The existence of interest allows borrowers to spend money immediately, instead of waiting to save the money to make a purchase. The lower the interest rate, the more willing people are to borrow money to make big purchases, such as houses or cars. When consumers pay less in interest, this gives them more money to spend, which can create a ripple effect of increased spending throughout the Malaysian economy. Businesses also benefit from lower interest rates, as it encourages them to make large equipment purchases due to the low cost of borrowing. This creates a situation where output and productivity increase.Higher interest rates mean that Malaysian consumers don't have as much disposable income and must cut back on spending. When higher interest rates are coupled with increased lending standards, banks make fewer loans. This affects not only consumers, but also businesses, who cut back on spending for new equipment, thus slowing productivity or reducing the number of employees. The tighter lending standards and criteria mean that consumers will cut back on spending, and this will affect many businesses' bottom lines. This will cause the businesses to reduce the number of employees that they have and to hold off on any major equipment purchases.2.The Effect of Interest Rates on Inflation and RecessionsWhenever interest rates are rising or falling, there is a term used which called funds rate. This is the rate that banks in Malaysia use to lend each other money. It can change daily, and because this rate's movement affects all other loan rates, it is used as an indicator to show whether interest rates are rising or falling. These changes can affect both inflation and recessions. Inflation refers to the rise in the price of goods and services over time. It is the result of a strong and healthy economy. However, if inflation is left unchecked, it can lead to a significant loss of purchasing power.To help keep inflation manageable, the Bank Negara watches inflation indicators such as the Consumer Price Index (CPI) and the Producer Price Index (PPI). When these indicators start to raise more than 2-3% a year, there is a possibility to raise the funds rate to keep the rising prices under control. Because higher interest rates mean higher...

Find Another Essay On The Effect of Interest Rates on Malaysian Markets and Economy

The Effect of Public Health Efforts on the Incidence and Mortality Rates of Cervical Cancer

1349 words - 5 pages Over the past few decades BC has been incredibly effective in its efforts to reduce cancer of the uterine cervix. However the decline of cervical cancer has reached a plateau; the rapid decline of the incidence and mortality rate of cervical cancer has come to a standstill. Public health efforts remain ineffective in several areas. Minority populations and people of lower socioeconomic status continue to be unreached by screening programs....

Fed and Interest Rates Essay

1139 words - 5 pages The Fed and Interest Rates      Dave Pettit of The Wall Street Journal writes a daily column that appears inside the first page of the journal's Money & Investment section. If the headlines of Mr. Pettit's daily column are any accurate record of economic concerns and current issues in the business world, the late weeks of March and the early weeks of April in 1994 were intensely concerned with interest rates. To...

Fed And Interest Rates

1402 words - 6 pages The Fed and Interest RatesDave Pettit of The Wall Street Journal writes a daily column thatappears inside the first page of the journal's Money & Investmentsection. If the headlines of Mr. Pettit's daily column are any accuraterecord of economic concerns and current issues in the business world,the late weeks of March and the early weeks of April in 1994 wereintensely concerned with interest rates. To quote, 'Industrials Edge Up4.32 Points...

The Negative Effect of Economy on Teenagers

2158 words - 9 pages Teenagers in the United States are negatively affected by the economy and the resulting actions that adults make. The current economy is troubling, which is making it difficult for most people to be able afford goods. It also causes some of the adults that will directly influence teenagers to make dire choices. The teenagers can either follow the lifestyles of these adults or they can try to take another path. However, it has become increasingly...

Effect of Monopolies on the Economy

866 words - 3 pages A monopoly is exclusive control of a commodity or service in a particular market, or a control that makes possible the manipulation of prices. A firm is the only provider of a product so there is no competition and it can set prices to whatever they wish. This is known as market power. The firm is able to raise the price of a good and not lose any sales as a result. This stems from exclusive control of important inputs, patents and copyrights,...

The Effect of High Frequency Trading Systems on Financial Markets

1394 words - 6 pages Whilst liquidity plays a central role in the functioning of financial markets, it is volatility that can be truly detrimental. Despite almost universal agreement among academics that HFT improves prices for investors and dampens volatility in equity markets, since the 6th of May 2010 the sector has come under intense scrutiny from regulators. On a day described as the ‘Flash Crash’, the U.S stock market experienced one of the most severe price...

Interest Rates and Bond Valuations

2298 words - 9 pages The intent of this paper is to define what bonds are as a vehicle for investors including a detailed explanation of the basic terms associated with bonds, the different types of bonds available in the markets, bond ratings, and why investors might want to consider bond investing to have a more diversified portfolio. Finally, the paper will discuss the relationship between bonds and interest rates in determining bond valuations. Following the...

How do interest rates influence the rate of inflation

1594 words - 6 pages Inflation is a sustained increase in the general price level (and a fall in the real purchasing power of money). The rate of inflation is normally measured by a consumer price index, such as the Retail Price Index in the UK (which measures the annualised rate of change in prices over the preceding year). The Monetary Policy Committee of the Bank of England meets each month to set the official base rate of interest for the economy, with the aim of...

Terrorism's Effect On The Economy

635 words - 3 pages Tis' the season to be jolly? With hijackings and anthrax dominating the daily news, it is easy to forget that the holidays are quickly approaching. Lately, the typical American consumer has been staying close to home and watching their spending. Instead of buying expensive suits and jewelry at expensive department stores, people are buying discounted items at Wall-Mart. Instead of going out to a restaurant, or indulging in theater, Americans are...

How exchange rates are determined and their impact on the Australian economy

1383 words - 6 pages The Exchange rate is the price of the Australian Dollar expressed in terms of another currency. The two most common measures of the exchange rate used in Australia are:- The exchange rate against the US dollar.- The trade-weighted index (TWI). This is a price in terms of a basket of currencies, rather than just one.The weights for the TWI are revised annually to capture changing trade patterns, occasionally giving rise to changes in the currency...

The Effect of Minimum Wage on the American Economy

1047 words - 4 pages The Effect of Minimum Wage on the American Economy A sensitive topic for many Americans is their income. Many people’s income relies on minimum wage. In 2012, 3.6 million people received an hourly pay at or below the national minimum wage. There is an ongoing debate in Congress as to what the national minimum wage should be. Currently at $7.25, Obama has suggested raising the national minimum wage to $9.00. Depending on a person’s economic...

Similar Essays

Effects Of Falling Interest Rates On The Canadian Economy

768 words - 3 pages The Canadian economy is a complicated and important issue for all Canadians because it affects everyone. It is also important for us to be informed about the economy in order to be better prepared and equipped to deal with the problems. The economic issue discussed in this essay concerns the current reductions in interest rates. Firstly, this essay will discuss the short term effects that are expected. And secondly, it will discuss the possible...

Financial Markets Notes: The Flow Of Funds And Determination Of Interest Rates

2715 words - 11 pages TOPIC 3: The Flow of Funds and Determination of Interest RatesObjective 1Identify the main features of the role played by the different sectors of the economy in the flow of funds between surplus and deficit units.3.1 The flow of fundsIn Topic 1, one of the main functions of a nation's financial system that was identified was to facilitate the transfer of funds from surplus to deficit economic units, in primary financial markets, by the creation...

External Influences Economy Interest Rates Most Businesses Will Need

601 words - 2 pages External influences Economy Interest rates Most businesses will need to borrow money. The interest rate will affect how much it costs. External influences Economy Interest rates Most businesses will need to borrow money. The interest rate will affect how much it costs a business to borrow money. If the interest rate is high the money a business owes is more than before. A 20% interest rate rise would affect Cadbury’s; they would...

The Rapid Growth Of The Malaysian Economy

2179 words - 9 pages It is well documented that Malaysia is a country that experiences fast and rapid growth in its overall economy. According to the Asian Development Bank (ADB), Malaysia has the potential to rise as one of the seven drivers of the Asian economy by 2050 led by China, India, Indonesia, Japan, South Korea, Malaysia and Thailand (Malaysian Insider, 2011). In the 1970’s, Malaysian companies started to focus on foreign investment but the numbers were...