Important Factors And Advantages And Disadvantages Of Interest Rates

Submitted By iowa1
Words: 553
Pages: 3

Important Factors in Economy
• Dollar: How strong is Dollar Vs. major currencies.

• Job Market: Increase in employment rate means, the economy is doing well enough to withhold the interest hike.
• Interest Rates: If the economy performing at the optimum level Feds. Tends to increase the rates.

Relationship among Stocks, Dollar, Bonds, and
Interest Rates
- If the economy is performing well then the Federal Reserve might increase the interest rates.
- Advantages and Disadvantages of changes in interest rates:
Lower Interest Rates

Higher Interest Rates

Overall economy performance is not at the optimum level.

Economy performing very well.

Lower interest on home, education, and car loans.

Higher interest rates.

Less attractive investment (small cash inflow) More attractive investment (large cash inflow)

Light monetary policies.

Strict monetary policies.

Higher bond values.

Lower bond values.

Lower cost of business.

Higher cost of business.

• Low interest rates can entice customers to purchase more credit products and loans. This activity helps to boost and stimulate the economy. • In short, if the economy is performing efficiently, it’s likely to have cash inflows and outflows at the optimum level, higher cost of living, and higher standard of living, which lead to strong currency. Strong Dollar: What is it mean?
Dollar Vs. other currencies
Dollar at highest level since 2003: (Friday, March 13, 2015)
$1= €1.04 +0.18%
$1= ¥121.39 +0.26%
$1=£0.68 +0.21%

• Nice time for a vacation? Travelers can get more money in foreign currencies.

Dollar Vs. Gold
- Stronger Dollar or Stocks lead to decline in gold demand and vice versa.
- If the stocks are performing well, people tend to invest more in the share market than in gold and other commodities.
Historic data between Dollar and Gold

Dollar Vs. Bond

- Strong Stock market and dollar leads to lower bond values.
- Below graph shows the inverse relationship between the market and bond.

S&P 500 Vs. 10 Year Treasury Note

Reasons for the dollar's strength:
• Strengthening U.S. economy (Good sign for the economy)
• Federal Reserve moving toward monetary policy normalization versus other global central banks— ECB & BoJ
—which are still aggressively easing policy.
• Stronger