The market interest rate is important to the investment decisions of firms _____
A) only when funds are borrowed from financial intermediaries.
B) only when firms have the money to invest in capital.
C) regardless of whether funds must be borrowed or firms have the funds on hand.
D) only when firms have funds on hand and are ready to lend them.
E) only when firms purchase new equipment rather than a new building.

Question

Quizplus · Accepted Answer

The market interest rate is relevant to investment decisions whether funds need to be borrowed or not. When the interest rate is high, businesses might choose to postpone investment until such a time when the cost of borrowing lowers to avoid the high cost of borrowing. Alternatively, when interest rates are low, businesses may actively seek to invest more to take advantage of better borrowing conditions. Therefore, regardless of the source of the funds, market interest rates are crucial for investment decisions.

The Market Interest Rate Is Important to the Investment Decisions