Interest Rate (Global)
Borrowing cost influenced by: central bank policy, risk, inflation expectations.
Formula
Cost of borrowing = Principal × Interest Rate × Time
Real World
When the US Federal Reserve raised interest rates sharply in 2022–23, the US dollar strengthened and capital flooded out of emerging markets like Turkey, raising borrowing costs and crashing currencies there.
Exam Focus
Always connect an interest rate change to at least two business impacts — e.g. investment decisions and exchange rate movement — for full marks.
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