Type of Interests

Explanation of this fact:

The rises on the type of interests supposes an increase on the financial costs of the companies affecting negatively their economic results. This provokes a reduction o the dividends to distribute and a descent on their stock exchange market quotation. This effect will be more or less important depending on how much debt the company has. The greater the debt the more negative will be the influence of the rising of the types of interests.

When the type of interests rise, the profitability of the fixed interest investments increases, alternative investments to that of variable interests. This is traduced in   a displacement of the investors towards securities such as debentures, public debt or bonds in detriment to those of variable interest, much more riskier.

The high types of interests diminish the consumption in favor of savings due to the enhancement of the funding of the sales of credits. Before it, a diminishing of the sales produced and in consequence a worst results for the companies, which affects negatively to the quotations of its shares.

With respect to the fall of the types of interests, they have the contrary effect to that of the rises of the types on the quotations due that they tend to go up. The causes:

The lowering of the type of interests supposes a reduction on the financial costs of the companies, bettering their economic results and because of it; they can distribute more dividends and the quotations of their share increase. Again, the magnitude of these effects will depend o the volume of the debt of each company.

When the types of interest fall, the fixed interest investments are reduced due that they offer a less profit. Now the displacement of the investors will be towards investments with variable interests.

The lower types of interest stimulate the obtaining of financing from part of the consumers, so the consumption increases in detriment of the saving accounts.

The increasing of the credit sales of the companies contributes to better their results affecting positively to the quotations of their shares.