Base rate

How the leading interest influences the finance market

The finance market is often stamped by the rise of the leading interest. Such rising leading interest is very unfavorable for the existing economic market. Leading interest is nothing else, than of the main rate settled by the central bank. This is a suitable sentence which is fixed to steer the capital market and money market. This sentence is important to know which interest rate is topical, so that banks can get themselves at issuing bank banks and commercial banks against impoundable securities, central money. The European central bank acts, on this occasion, as a responsible central bank in Germany (EZB). This central bank determines the respective leading interest.

The admission of loans and advances by an enterprise or a company is complicated immensely, because the rising leading interest raises the price of these financing measures considerably. Rising costs are always connected with a lower turnover. This means for an enterprise which outside capital takes up that the profit decreases by the higher costs sooner or later. Also in the stock exchange the leading interest is reflected negatively again. Since because is traded on the stock exchange for the future, rising costs are to be evaluated in an enterprise negatively for his shares. The results are decreasing courses and the health resort increase is terrifically slowed down. Therefore, enterprises with rising financing expenses and lower profits, are worse traded on the stock exchange, than enterprise with future declining costs and thereby to rising profits. Rising leading interest not only is still to be looked negatively. Since as soon as the leading interest rises, other investment forms fixed-interest are to be seen substantially more attractive. Hence, day money and fixed term deposits accounts become more and more popular than customary funds and shares. From it there result falling share markets.

Hence, a sinking leading interest is much more positive for enterprise. Since by the sinking leading interest companies and enterprises promise to themselves lower financing expenses and higher abusive profits, the courses thereby rise on the stock exchanges. Exceptions to this regulation form in parallel running rising or falling enterprise courses and market interest. The leading interest is also sometimes to be looked apart to the share markets. This is particularly the case when general events or an especially good economic situation view apply. The most important development for Europe are the developments of the interest of the EZB and the US issuing bank.

It are historically important above all the leading interest of the minimum lending rate and the rate for loans on security. Here securities were pledged at the central bank. With takeover of the central banking transactions by the EZB, the rate for loans on security was removed by the open market shops.

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