a value of money reduces with increase in interest rates. As the interest rates, increase the present value of an investment reduces.It is the composite cost of capital that a firm is currently using. It is calculated by determining the weighted average cost of each source of capital in the firm’s capital structure This consist of cost debt, equity, and preference shares. The cost of debt is affected by interest rates. The increase in interest rates will hike the cost of debt. The interest rate will spirally increase the cost of capital in the firm this will lead to increased WACC from a previous year to currents year.Interest rates will increase the cost of production of the firms in the market. It will lead to reductions in earnings by the industries. Some of the firms will increase their debts by borrowing firm to maintain the level of operation in the market. The increase in the cost of operations will be translated to increased prices in the market. High prices in the market will lead to the inflationary spiral that affects the economic stability of the nation. The domestic currency will devalue, exchange rates will increase, oil prices in the domestic market will increase compared to the foreign market leading to a general increase in the cost of living. If the government through trade tariffs consumers does not protect the corporate sector and suppliers will resort to cheap imports compared to domestic products. It will reduce the market share of the corporate sector leading to low revenue this might lead to the collapse in the long run. The collapse of the corporate sector will affect the nations GDP since the corporate sector is the main source. US Treasury Yields.
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