External business environment

Subject: External environment

Topic: Economy - interest rates

Interest rates are the “cost of money”. If you borrow money then you may have to pay back the original amount PLUS a charge for borrowing the money. That charge is known as interest. It is a percentage of the original amount. You may have to pay the interest weekly, monthly or annually. It is also the reward for saving – you receive a percentage of the original amount.

There is never just one interest rate. There are many rates based on whether you are a borrower or saver, the type of borrowing you are making and your personal or business circumstances. However the rates will tend to move up and down with the BASE RATE, which is a central rate, set by the Monetary Policy Committee of the Bank of England.

The following types of borrowing and saving often have an interest rate attached:

Bank loans
Mortgages (borrowing to purchase a property)
Debentures
Deposit accounts
Bank current accounts
Credit cards

A change in interest rates affects businesses in the following ways:

If the business has loans then an increase in interest rates will mean higher repayments, reducing profits.
If the business wants to borrow money to say build new premises, then they are less likely to go ahead with the project when interest rates increase.
Customers are going to find that they are more attracted to saving than to spending if interest rates go up and less likely to borrow money to spend as well. This may reduce sales for the business.

tutor2u is the leading global publisher of e-learning resources for Economics, Business, Politics, Enterprise, Law, Sociology, Religious Studies and related subjects. Our materials are used by over 3,500 schools and colleges in the UK and in educational institutions in over 85 other countries. tutor2u offers a range of free and subscription-based materials - designed to support teachers and inspire students. The business also runs a popular series of student revision workshops and teacher conferences. tutor2u was named Online Learning Resource of the Year at the prestigious BETT Show - the World's leading educational show.

Privacy & terms of Use
Our privacy policy is published here: www.tutor2u.net/privacy.asp. The terms of use of this website are set out here: www.tutor2u.net/terms.asp. " tutor2u" is a registered trade mark. The information contained on this website is copyright Tutor2u Limited. All rights reserved

Contact us
The sales team at tutor2u can be contacted by phone on 0844 800 0085. Orders can be faxed to 01937 529236. The office address is: Tutor2u Limited, Boston House, 214 High Street, Boston Spa, UK LS23 6AD To contact tutor2u by email, please use this form: Tutor2u - Contact Form

Teacher Newsletters & Subject Blogs
tutor2u publishes a variety of free teacher newsletters and blogs for our featured subjects. Teachers can access these materials here: Teacher Newsletters A daily RSS feed for each of our free subject blogs can be accessed here