Interest Rates

  • The cost of borrowing money
  • The higher the level of risk, the higher the interest rates
  • Businesses can borrow money from other countries that have lower interest rates but experience exchange rate risks.
    • If the value of the AUD depreciates, interest payments increase because more AUD are needed to pay the same foreign currency.

Overseas interest rates in economies of Australia trading partners like the US and Japan influence local interest rates, although this is less significant today than it once was.

Extract from Business Studies Stage 6 Syllabus. © 2010 Board of Studies NSW.