mm255-01-Unit6-Assignmentpt2-Edwardjulius Essay Examples

High-Interest Rates

Every investor would like to earn big returns on his or her investments. High-interest rates normally yield high returns and would normally attract most investors. However, high-interest rates are associated with high-risk investments (Bekaert & Hodrick, 2009). Such investments would require risk-averse investors who need extra incentive to take the high risks. One of the advantages of high-interest rates is that investors will not have to seek volatile investment opportunities in order to reap big. In other words, general high-interest rate in the market reduces the market's volatility for the investors. They do not have to take high risks in order to earn high returns (Agarwal, 2013).
On the other hand, when the interest rates for investing are high, it is almost given that interest rates for borrowing will be equally high. Most investors rely on borrowing from financial institutions to invest. High-interest rates will limit their borrowing ability because it will be expensive for them to repay the loans. The high rates of borrowing and investment returns would eventually cancel out for investors who rely on borrowing (Agarwal, 2013). This implies that an investor would borrow money at a high-interest rate, earn high returns upon investing, but then use a good percentage of the returns to repay the loan. In the end, it balances out the high-interest rates.

References

Agarwal, A. (2013). Advantages and Disadvantages of High Interest Savings Account. Getting Money Wise. Retrieved 19 March 2015, from http://www.gettingmoneywise.com/2013/03/advantages-disadvantages-high-interest-savings-account.html
Bekaert, G., & Hodrick, R. (2009). International financial management. Upper Saddle River, N.J.: Pearson Prentice Hall.