Download Revision Points for The Impact of Interest Rates

Topic 1.5: Understanding the economic context
revision points
Chapter 25: The impact of interest rates
 Credit
is another word for loan. It is a means of getting something expensive now and
paying for it in smaller regular amounts over a period of time in the future.
 Those
lending money need to know that the borrower is credit worthy – that they will be
able to pay back the loan and the interest.
 Long-term
borrowing is usually for large fixed items e.g. machinery, sometimes agreed at a
fixed interest rate.
 An
overdraft is short-term means of helping cash flow. It is a loan to be used when needed.
It is a useful back up for businesses. It can be expensive but interest is only paid on the
amount overdrawn not the full limit.
 Interest
rates are the percentage reward to savers or paid on loans by borrowers.
 High
interest rates – good for savers, bad for borrowers.
 Low
rates interest – bad for savers, good for borrowers.
 If
interest rates rise it tends to discourage borrowing and reduce consumer spending – bad
for businesses.
 If
interest rates fall it can encourage borrowing and spending – good for businesses.
© Pearson Education Ltd 2009
Edexcel GCSE Business Studies
page 1