Research proposal on Investigating the problems of the interest rate and whether it is a potential risk that faced in economy growth

Research Problem

An economic downturn or collapse causes long-term investors to become cautious and place excess funds in temporary investments to ride out the decline. Hence, the increased supply of short-term capital causes short-term interest rates to fall faster than long-term interest rates. An economic recovery cannot begin unless there is a supply of short-term funds in excess of demand, which is usually evidenced by short-term interest rates being significantly below long-term interest rates (Schaefer, 1993). Economic collapse is caused by various things from the internal and external environment. For some the mis use of the interest rates contributes to the collapse of the economy. This paper intends to investigate the problems of the interest rate and whether it is a potential risk that faced in economy growth. In this study the researchers will try to prove that the risk free rate is the problem of the economy and it is behind the economic collapse

 

Importance of the research

The research is important because it will give an analysis of the cause of the economic collapse. The research will delve further into the circumstances behind the economic collapse. The research is needed to clear up any misunderstanding about interest rates and the risks it brings to an economy.  It analyzes the concept of interest rates and how it affects an economy. Moreover the research will help in determining how risk free rates contribute to the problems of an economy.

 

Literature Review

Interest rates are the price to borrow money, and interest rates, like all prices, reflect demand and supply. When the demand for borrowing is high, all other things equal, the price of borrowing will also be high. When the supply of money available to lend to borrowers is high, the price will be lower. Nevertheless, some interest rates are always higher than others, and while interest rates tend to move in the same direction at the same time, rates do not always move exactly in tandem. The relationship between the different rates is called the structure of interest rates. As lower yields and lower interest rates pervade the economy, the lower borrowing costs can be expected to spur consumer spending and business spending (Nowak, 1993). Higher interest rates and less money in the economy can be expected to curtail consumer and investment spending to some extent. Inflationary expectations rose and fell with extreme changes in the consumer price index. This also had an important effect on the volatility of interest rates. Borrowers were eager to obtain funds in the inflationary atmosphere, and their increased demand raised the interest cost on loans. They were willing to pay higher interest rates because they realized that the borrowed money would be easy to repay in depreciated dollars. On the other side of the transaction, lenders also expected higher interest rates to compensate for the loss in purchasing power resulting from inflation (Blake, 2000). The interest rate has a certain effect on the economy. It affects the strategies and policies used by a country. Any mistake in policies leads to economic downturn and then collapse.

 

Research methodology

 The research will use the descriptive method to determine if seaweeds can be profitable as salt substitutes. Descriptive research tries to explore the cause of a particular event or situation. It also wants to present facts concerning the nature and status of a situation, as it exists at the time of the study (Creswell, 1994). In addition, such method tries to describe present conditions, events or systems based on the impressions or reactions of the participants of the research. Basically, a descriptive research utilizes observations. The descriptive approach is also quicker and more practical in terms of financing. Moreover, this method will allow for a flexible approach, thus, when important new issues, probabilities, and questions come up during the duration of the study, a further investigation and confirmation may be allowed. Lastly this type of approach will allow for decisions to drop unproductive areas of research from the original plan of the study. The choice and design of methods are constantly modified during data gathering based on continuing analysis. This will give way for creation of an investigation of important new issues, concerns and questions as they arose.  Qualitative and quantitative methods will be used in this research.

 

Hypothesis

There are two hypotheses for the study. One of which is without interest rates the economy would suffer a deeper collapse. Another hypothesis is focused on the notion that the once risk free rates are evident in an economy, managers of that economy should immediately find means to counter it.

 

References

Blake, D. (2000). Financial market analysis. Chichester,

England: John Wiley & Sons. 

Creswell, J.W. (1994). Research design: qualitative and

quantitative approaches. Thousand Oaks, California:

Sage.

Nowak, L.S. (1993). Monetary policy and investment

opportunities. Westport, CT: Quorum Books.

Schaefer, H.G. (1993). Economic trend analysis for

executives and investors. Westport, CT: Quorum Books.

 

 

Credit:ivythesis.typepad.com