Interest Rates and Other Critical Determinants of Investment Spending in Bangladesh

A macroeconomic item (or factor) may be generally categorized as anything that influences the direction of a particular large-scale market (Investopedia, n.d.). For this analysis, the macroeco-nomic factor shall be interest rate (i.e. discount rate). The following sections that scrutinize the implications of changes to interest rates to the Company’s Present Value* (PV), based on its Free Cash Flows* (FCF); discuss the impact of an issue within the overall stock market on the Com-pany’s stock valuation numbers, other financial variables, or its overall portfolio management; and analyze and discuss the impact of an external factor to the Company.

A: Investment spending depends on interest rates due to opportunity cost and risk. For example, when interest rates rise, the opportunity cost of your investment also increases. When interest rates are higher investors are willing to pay less for payment in the future. Which in turn leads to a lower rate of investment. The opposite can be said for falls in interest rates that are met will lower opportunity costs.

Because consumption, the real GDP, investment, and the lending interest rate are dependent variables, they can be determined by this model. Hence, they are considered endogenous variables. On the other hand, government spending and the money supply are assumed to be determined by factors outside of the model, such as the Chinese government itself, they are considered exogenous variables in this model. After solving this model, the estimated values of consumption, investment, interest rate, and government spending from 1982 to 2014 are determined based on these equations.

Bartlett, B. (2004). Higher interest rates hardly bad news. Human Events, 60(14), 19.Brealey R. A., Myers S. C., & Allen F. (2006) Principles of corporate finance. New York: The McGraw Hill Companies.

A: Investment spending depends on interest rates due to opportunity cost and risk. For example, when interest rates rise, the opportunity cost of your investment also increases. When interest rates are higher investors are willing to pay less for payment in the future. Which in turn leads to a lower rate of investment. The opposite can be said for falls in interest rates that are met will lower opportunity costs.

Real rate of interest To estimate the real rate of interest, the economics division of

Hondroyiannis and Papapetrou (2001) found that the domestic market economic activity affects the performance of domestic stock market. Toda and Yamamoto (1995) indicated that stock prices lead nominal income, the exchange rate and the price level, but money supply and interest rate lead the stock price. Abdul Rashid (2008) found that the stock prices Granger-caused by the short run changes in interest rates and stated that the association between the health of the stock market in the sense of a rising share prices and the health of the economy is only a long-run phenomenon. Pethe and Karnik (2000) reported weak causality running from IIP to share price index (Sensex and Nifty) but not the other way round and it held the view that the state of economy affects stock prices. Fama and Gibbon (1982) examined the relationship between inflation, real returns and capital investment and supported Mundell (1963) and Tobin (1965) findings that expected real returns on bills and

The supply and demand for loanable funds depend on the real interest rate and not nominal.

In this paper I would like to examine the impact of inflation, interest rate, and the Gross Domestic Product on the economic growth of India. The ability of expanding the production of products and services will be reflected by the economic growth of the country. Economic growth can be defined by the growth in the GDP (Gross Domestic Product) of that country. Inflation factor will be typically balanced by the Nominal Gross Domestic Product (GDP) in order to reflect the real GDP. In macroeconomics interest rate is one of the growth factor. The up and down volatility of the interest rates is directly related with the inflation rates. This study is a contribution to the existing literature on the real growth applied to India’s economy; it will examine the impact of inflation, Interest rate, and Gross Domestic Product on the Economic growth rate (Saymeh & Orabhi, 2013).

Inflation can diminish the buying power of a dollar. When the yearly inflation rate surpasses the 'rate of return ', the market participants lose invested funds due to the deterioration of purchasing power. According to several financial articles, the significance of inflation on investment is subjective to the kind of securities held. A higher yield on a stock is not a safer expenditure; one most also take into consideration the risks involved. Interest rate risk can affect various bonds in different ways. A bond 's yield-to-maturity is the "discount rate" used to make the present value (PV) of all the bond 's cash flows equal to its price. When a bond 's yield rises, its price goes down, when a bond 's return decreases, its price goes up. For example, according to the article titled "How Interest Rate Changes Affect the Price of Bonds" it states, "the discount rate applied is the percentage of interest prevailing in the market for bonds of the similar risk and maturity."

Using a cross-sectional panel data approach, Arquette et al. (2008) model the variations in ADR discount as a function of expected changes in exchange rate expectations and differences in investor sentiment.31 The sample

Interest rate is considered as one of the main parameters to control the economic conditions of any country. Interest rate is the key variable for time value of money, which causes a greater shift in money markets and capital markets. This study is basically carried out for the capital market or stock market.

Looking at the Korean economy, the trend of decreasing exports and imports have continued to show due to the slowdown of economic growth. As a result of the declining values of the current account, investments have recently declined because South Korea is an export oriented country and many of its major

Likely another study was conducted on the impact of foreign capital inflow on savings and investment: a case of Pakistan by (Aslam, 1987). The study shows that the net foreign capital inflow has a negative effect on domestic saving and is significant at conventional level.

As we have seen in the Solow Model, the savings rate of a country is an important determinant of country’s long-term growth. The spending and the saving habits of the people over-time contribute to the country’s savings rate. In a macro-economic sense, the savings rate is the percent of present income invested for future production as: