Corporate finance is a multifaceted sector that is affected by various macroeconomic variables. Organizations borrow money to boost their daily activities since some projects can be more expensive than they can afford. Interest is the amount of money that lenders receive upon lending money to organizations. Governments regulate the amount of money the lenders can charge borrowers to ensure uniform economic growth (Eatwell et al., 2022). The developing technological advances and economic climate are likely to change the interest rates set by various authorities. A change in interest rates affects various economic activities of a country. The change affects borrowing capacity and consequent growth of corporations. Therefore, corporate managers should prepare for high-interest rates in the next 5 to 10 years for their organizations to stay afloat in business.
Financial institutions such as banks depend on the interest earned from lending money for sustainability. However, the improving technology is significantly affecting the operations of financial institutions. For instance, the advent of e-banking and mobile banking activities requires banks to adopt complex financial systems. Additionally, the emergence of unprecedented calamities such as COVID-19 reduces the profitability of financial institutions (Sakib, 2022). Therefore, many governments are likely to allow increased interest rates for the organizations to remain competitive in the market and deliver quality services. Interest rate is the percentage proportion of money lent charged after a specific period (Whited et al., 2021). Societal changes and developments may lead to increased interest rates in the next 5 to 10 years.
High-interest rates will affect various economic sectors that largely depend on borrowed money. Small and medium enterprises (SMEs) will be affected since they utilize borrowed money for business expansion (Liu et al., 2021). The SMEs may shy away from borrowing money from banks since the increased interest rates make the businesses unsustainable. Meanwhile, the big corporations, including governments, that depend on loans for development activities will be negatively affected. Consequently, ununiform economic growth will be inevitable due to poor infrastructure and a lack of business sustainability. Therefore, organizations must develop strategies that would help reduce overdependence on loans.
Throughout the course, I have learned various skills that would help me prepare for the impact of increased interest rates in my life and profession. As an ordinary citizen, the increased interest rates may lead to a high cost of living. Many businesses may increase the cost of their products and services to remain sustainable. In class, I learned about the importance of a saving culture in a community and during an economic crisis. Therefore, I will cut my daily expenditure and increase the amount I save every month. Additionally, I would venture into investment activities such as securities purchases. The money invested in stock will likely attract high profits upon stabilization of the interest rates.
Meanwhile, as a business manager several skills will help me prepare my company for the impact of increased interest rates. First, I would use the communication skills of corporate managers to create a good rapport with financial institutions. The cordial relationship will allow my company to be favored when out of cash. Additionally, the financial forecasting skills will help me estimate the profitability of my businesses, and take necessary steps. Furthermore, creative-thinking skills will be crucial in developing sustainable strategies for my company (Uvarova et al., 2021). Preparing my company for the impact of increased interest rates will help in remaining competitive in the market. While the increased interest rates are detrimental to businesses and personal life, financial management skills can help mitigate the situation.
References
Eatwell, J., Commendatore, P., & Salvadori, N. (2022). Classical economics, Keynes and money. Routledge, Taylor & Francis Group.
Liu, Y., Zhang, Y., Fang, H., & Chen, X. (2021). SMEs’ line of credit under the COVID-19: evidence from China. Small Business Economics, 58, pp. 807-828. Web.
Sakib, S. M. N. (2022). Impact of COVID-19 on UK Retail Banking. Web.
Uvarova, I., Mavlutova, I., & Atstaja, D. (2021). Development of the green entrepreneurial mindset through modern entrepreneurship education. IOP Conference Series: Earth and Environmental Science, 628, pp. 012034. Web.
Whited, T. M., Wu, Y., & Xiao, K. (2021). Low interest rates and risk incentives for banks with market power. Journal of Monetary Economics, 121, pp. 155–174. Web.