interest and exchange rates

interest rates - the cost of borrowing

may not have capital to start or expand a business without borrowing

typically a bank will give a loan to a business or allow it to have an overdraft and the business will pay interest

• on top of its repayment for the loan

• on any overdraft

rising interest rates

• businesses on a variable rate may struggle to repay loans

• small businesses are less likely to borrow money to start up or demand

• customers are less likely to spend money as borrowed money costs more so consumer spending falls

falling interest rates

• businesses will have more money to spend and cash flow will improve

• businesses may borrow money for a start up or expansion

• customers are more likely to spend their money, consumer spending rises

exchange rates - effect of fall in the value of the pound

• good for uk exports of good - prices of exports falls

• good for uk tourism - prices are cheaper to foreigners

• good for uk businesses - imports more expensive

• bad for uk importers of materials - imports more expensive

exchange rates - the effect of a rise in the value of the pound

• bad for uk exports - prices of exports rises

• bad for uk tourism - prices are more expensive for foreigners

• bad for uk businesses - imports cheaper

• good for uk importers of materials - imports cheaper