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Questions and Answers
What is the impact of higher interest rates on borrowing costs for businesses?
Higher interest rates can increase borrowing costs for businesses, affecting cash flow and profitability, especially for non-essential businesses.
How is the Bank of England Base Rate related to the interest rates banks charge for loans and savings?
The Bank of England Base Rate set by the Monetary Policy Committee influences the interest rates banks charge for loans and savings.
Explain the calculation of interest on a bank loan.
The calculation of interest on a bank loan involves subtracting the borrowed amount from the total repayment, dividing that difference by the borrowed amount, and multiplying the result by 100 to express it as a percentage.
What is the purpose of businesses borrowing money?
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In the given scenario, how was the interest rate on the loan calculated?
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Study Notes
- Interest rates impact individuals and businesses, representing the cost of borrowing money or the reward for lending it.
- Businesses borrow money to finance projects, expansion, and refurbishments, often paying interest on loans.
- The Monetary Policy Committee sets the Bank of England Base Rate, influencing interest rates banks charge for loans and savings.
- Higher interest rates can increase borrowing costs for businesses, affecting cash flow and profitability, especially for non-essential businesses.
- The calculation of interest on a bank loan involves subtracting the borrowed amount from the total repayment, dividing that difference by the borrowed amount, and multiplying the result by 100 to express it as a percentage.
- In the provided scenario, a business borrowed £25,000 and had a total repayment of £27,000, resulting in an interest rate of 8%.
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Description
Test your knowledge about how interest rates impact businesses and borrowing costs. Explore the factors influencing interest rates and the calculation of interest on a bank loan.
