For businesses, it is important to consider the future path of interest rates because:
A) businesses use borrowed funds to leverage their ﬁnancial returns.
B) businesses use equity to leverage their ﬁnancial returns.
C) they affect the long-run level of unemployment in an economy.
D) businesses use borrowed funds to maintain the high salaries of managers.

Question

Quizplus · Accepted Answer

Interest rates directly impact the cost of borrowing. When businesses use borrowed funds to finance their operations or investments, the interest rate determines the cost of those funds. Lower interest rates make borrowing cheaper, potentially leading to higher financial returns, while higher interest rates make borrowing more expensive, reducing potential returns.

For Businesses, It Is Important to Consider the Future Path