Essay

ffects of Changes of Interest Rates & Inflation
By VanWyk | September 2010

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Page 1 of 8
INDEX:PAGE:

1. INTRODUCTION2
2. OBJECTIVES3 - 3
3. METHODOLOGY USED3 - 4
4. PRESENTATION AND ANALYSIS4 - 6
5. CONCLUSION6
6. RECOMMENDATION6 - 7
7. REFERENCES7

INTRODUCTION

The impact of the change interest rates and inflation has a persistent impact on the well being of any given society. For this purpose it is the understanding that each individual in society should have an understanding of what such changes bring fourth for the man on the street. In this introduction, we are going to introduce certain key points to remember when dealing with interest rate- and inflation changes.

Inflation is a sustained increase in the general level of prices for goods and services When inflation goes up, there is a drop in purchasing power of money Variations on inflation include deflation, hyper inflation and stagflation The cause of inflation is defined in two theories namely Demand-pull inflation and Cost-push inflation When there is anticipated inflation, creditors and people earning a fixed income loose, costs goes up - people are less likely to spend money and exporting of goods drop The lack of inflation (or deflation) is also not necessarily a good thing Inflation is measured with a price index

Price Indexes are categorized as Consumer Price Index and Producer Price Index Interest rate changes are decided by the Central Bank in South Africa and enforced by Bank of Namibia In the long run, stocks are good protection against inflation Inflation is a serious problem for fixed income investors

Inflation-indexed securities offer protection against inflation, but offer low returns.

Taking into consideration the key points to remember, one can now safely define what interest rates and inflation means:

# Interest Rate:
A rate which is charged or paid for the use of money. An interest rate is often expressed as an annual...