Types of Interest

The variations of the types of interest offered for money in banks and other financial entities tend to affect directly the stock exchange markets. So when these types of interest rate, low quotations of shares are produced on the market. These decreases can be explained by several reasons:
  • the rise in the types of interests elevates the financial burden of the companies and because of it, it makes the economic results to get worse, which provokes a decrease in dividends to distribute and also on the quotations.
  • When the types of interest rise, the profitability of fixed interest investments and of the debentures increase, the public debt or bonds for example. This provokes a displacement of the investors towards fixed interest securities, in detriment to those of variable interests that always imply a greater risk.
  • The high type of interest make the consumption to diminish due to the increase in the price of the financing of sales on credit. This provokes a diminishing of the sales and because of it, the worsening in the results of the companies, which affects negatively the quotations of their shares.

And on the contrary, when the types of interest fall, the quotation of the shares tend to get better. The causes of this improvement are basically due to:

  • the falling of the types of interest reduce the financial costs of the companies, with these improvements their economic results get better, causing to increase their distribution of dividends and the quotation on their shares.
  • If the types of interests are reduced, the fixed interest investments will offer a lower profitability. This fact makes the investments in variable interest more attractive against that of fixed interests.
  • The low types of interests stimulate consumers to finance operations, which raises the sales on credit of the companies and also contributes to get better results for them.

For these reasons, any information related to the variation of the types of interests will provoke immediate effects on the on going of the stock exchange market. Possibly, the types of interests are the most influential variable for the market to rise or fall.

Beginner Money Investing Analysis of the Economic Juncture & of the Moment Types of Interest Market Inflation Economic Policies Psychology of investors and other aspects that affect the stock exchange climate Market Variations Summary