TOPIC 3 - ECONOMIC FACTORS 3.2

economic factors are about interest rates which relate to inflation, house prices, savings and investment, government spending, unemployment, global economy and exchange rates.
INTEREST RATES AND INFLATION
1. they are the price that banks charge borrowers for the money that they lend and the price that banks pay to savers for the use of the money that they have deposited with the bank.
2. When Bank rate goes up, most lenders will automatically increase the interest rates that they charge on loans, credit cards, mortgages, overdrafts, etc.
3. Borrowers with variable-rate mortgages or credit cards will face higher monthly payments,
IMPACT ON PERSONAL FINANCES
1. Because of interest rates, less people are buying houses which means the demand for new builds decreases and also for goods such as furniture and services from builders, decorators, plumbers and estate agents. .
2. people then lose their jobs or worry their job is under threat
3. people who are only just managing to pay their mortgages at low interest rates will lose their homes and suffer te effects of this on their credit history. this will make it difficult to for them to et another mortgage in the future.
INTERESET RATES, SAVINGS AND INVESTMENTS
1. The rates are also increased for savers. this can also effect peoples attitude to saving and borrowing as it can encourage them to save instead of spend and then borrow.
  1. the main people who benefit will be retired people and those who repy on their savings to provide an income
2. also affect investors, prices of shares may fall after a rise in interest rates.
GOVERNMENT SPENDING
1. If the government spending is more than the amount raised by tax then the governments budget is in deficit.
2. governments were encouraged by low interest rates and easily available credit to borrow more and more. these borrowings are used to finance significant expansions such as on education, public transport and the health service.
UNEMPLOYMENT
1. People who are unemployed are most likely to be focused on protection and security.
2. employed people are able to save money if they have earned enough to have money left over after spending on their needs and everyday wants.
EXCHANGE RATES
1. individuals and businesses need financial providers to supply
  1. foreign exchange services
    1. buy-back guarantees
      1. credit and debit cards that will be accepted abroad
        products that help businesses to manage exchange rate risk
2. it is better not to borrow money when in a different country as it carries a significant exchange rate risk.
THE GLOBAL ECONOMY
1. the collapse of the US market became contagious.
2. banks in the UK and Europe were exposed from investing money into toxic ways of repackaging mortgage debts into investment products.
3. banks had to be rescued by government bailouts borrowing more money added to their debt.

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TOPIC 3 - ECONOMIC FACTORS 3.2

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