A government raises interest rates. Which of the following is the most likely immediate effect on businesses that have borrowed money at a variable rate?

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Question

A government raises interest rates. Which of the following is the most likely immediate effect on businesses that have borrowed money at a variable rate?

Accepted Answer

Their monthly interest payments will increase — When interest rates rise, variable-rate loan repayments increase immediately because the interest charged is linked to the prevailing rate. Option A is incorrect — higher rates increase, not decrease, repayment costs. Option B is incorrect — businesses may see lower sales as consumers reduce spending. Option D is unrelated to interest rate changes on existing loans.

Answer

Their monthly interest payments will increase

Answer

Their exchange rate risk will be eliminated

Answer

Their revenue from sales will increase

Answer

Their loan repayment costs will fall

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