influences on investment (1 Viewer)

[clairegirl]

Stupid question
1. in relation to influences on investment... relative cost of equipment is one of the influences... and that is influenced by the interest rates, the higher the interest rates the more it costs for capital equipment therefore businesses would be less willing to invest in capital coz capital cost is expensive..... but doesn't that contradict the whole concept of.... the higher the interest rates the more people are going to want to invest becoz of a high return?? or does that only relate to overseas investors wanting to invest in australia?

I feel stupid ...

 

[~DuMbEr~]

yeah thats right..foreign investors will invest in aust if we have an attractive interest rate (I rate differential) as they will recieve the income..interest, as their return for investing in aust.

 

[numg]

I think the problem is in the term 'investment'. A higher interest rate encourages savings both domestically and from foreign investors. Here the money is the capital which returns interest.

When firms make an investment, they buy capital equipment and when they borrow money to do that it comes from wherever interest rates are cheapest. Here money is borrowed to buy equipment, which is the capital that returns interest.

i have no idea if that is right at all, cause the same thing has confused me so many times, so correct me if im wrong. It sounds okay though so maybe is arguable. I think it depends on when you use it and specifying where it comes from"a high interest rate in Australia relative to overseas encourages foreing investment in Australia." then just gloss over what you don't know