Asked by Angelica Ibarra on Jun 29, 2024
Verified
Interest rates and stock prices move:
A) randomly exhibiting no causal relationship.
B) in opposite directions.
C) up and down together.
D) None of the above
Interest Rates
The expense incurred when obtaining a loan, typically represented as a percent of the total amount lent.
Stock Prices
The cost of purchasing a share of ownership in a company, which fluctuates based on market conditions and the company's performance.
Opposite Directions
This term typically describes movements or trends in markets, investments, or analyses that are contrary to each other.
- Understand the impact of interest rates on financial markets and the factors that determine interest rates.
Verified Answer
ZK
Zybrea KnightJul 04, 2024
Final Answer :
B
Explanation :
Interest rates and stock prices generally move in opposite directions. When interest rates are high, borrowing becomes expensive, and this reduces consumer and business spending. As a result, corporate earnings decrease, and stock prices fall. Conversely, when interest rates are low, borrowing becomes cheaper, and this boosts consumer and business spending. This, in turn, leads to higher corporate earnings and a rise in stock prices. Therefore, there is an inverse relationship between interest rates and stock prices.
Learning Objectives
- Understand the impact of interest rates on financial markets and the factors that determine interest rates.