{"id":118309,"date":"2021-07-13T19:52:02","date_gmt":"2021-07-13T14:22:02","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=118309"},"modified":"2021-07-14T18:08:43","modified_gmt":"2021-07-14T12:38:43","slug":"interest-rates-and-asset-prices","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/interest-rates-and-asset-prices\/","title":{"rendered":"Interest rates and asset prices"},"content":{"rendered":"<p><strong>Source<\/strong>: <span style=\"color: #0000ff;\"><a style=\"color: #0000ff;\" href=\"https:\/\/www.business-standard.com\/article\/opinion\/interest-rates-and-asset-prices-121071201397_1.html\" target=\"_blank\" rel=\"noopener\">Business Standard<\/a><\/span><\/p>\n<p><strong>Synopsis<\/strong>: Relationship between interest rates and asset prices is discussed<\/p>\n<h5><strong>What is an asset?<\/strong><\/h5>\n<p>An asset is defined as follows,<\/p>\n<ul>\n<li><em>a useful thing or an item of property owned by a person or company, regarded as having\u00a0<strong>value.<\/strong><\/em><\/li>\n<\/ul>\n<h5><strong>Interest rate<\/strong><\/h5>\n<p>Interest rate is defined as<\/p>\n<ul>\n<li><em>the price one pays to borrow money or the payment one receives when one lends money.<\/em><\/li>\n<\/ul>\n<p>For e.g.: When you take a loan from a bank, you are charged an interest rate that you have to pay to the bank.\u00a0 Similarly, if you deposit the money in a bank (or we can say, lend money to the bank), you are paid an interest rate.<\/p>\n<h5><strong>Relationship b\/w asset price &amp; interest rate<\/strong><\/h5>\n<p>Both are inversely related, i.e.<\/p>\n<ul>\n<li>When interest rate is low, asset prices are high, and;<\/li>\n<li>When the interest rate is high, asset prices are low.<\/li>\n<\/ul>\n<p>Let us understand this with an example from <span style=\"color: #0000ff;\"><strong><a style=\"color: #0000ff;\" href=\"https:\/\/forumias.com\/blog\/financial-market-in-india-concepts-simplified-prelims-capsules-2021\/#Bond_Yield\" target=\"_blank\" rel=\"noopener\">bonds<\/a><\/strong><\/span>, as bonds also are a type of asset.<\/p>\n<ul>\n<li>Assume that you purchase a bond priced at 100 Rs @ 10% interest rate paid annually for 2 years, meaning the bond shall pay you a payment of 10 Rs every year for 2 years.<\/li>\n<li>Now, suppose the interest rates go up to 15% the very next day or after a few days.<\/li>\n<li>You have a friend who also purchased the bond when the interest rate was 10%. He is in need of money and offers you to buy his bond.<\/li>\n<li>Now, you&#8217;ll not buy your friend&#8217;s bond for 100 Rs. Why? because the same 100 Rs bond if bought from the open market is giving a 15% interest rate while your friend&#8217;s bond is still priced at 10% only. So, you make an offer to your friend that you&#8217;ll purchase his bond at 80 Rs.<\/li>\n<li>Though hesitant, your friend, who is in desperate need of money, accepts your offer.<\/li>\n<li>Hence, as you can see now, with an<strong> increase in interest rate, the bond price went down.<\/strong><\/li>\n<\/ul>\n<table style=\"width: 100%; border-collapse: collapse; background-color: #f7f2f2;\">\n<tbody>\n<tr>\n<td style=\"width: 100%;\"><strong>Also Read:<\/strong> <a href=\"https:\/\/forumias.com\/blog\/monetary-policy-basics-simplified\/\"><span style=\"color: #0000ff;\"><strong>Monetary policy &#8211; Everything you need to know<\/strong><\/span><\/a><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n","protected":false},"excerpt":{"rendered":"<p>Source: Business Standard Synopsis: Relationship between interest rates and asset prices is discussed What is an asset? An asset is defined as follows, a useful thing or an item of property owned by a person or company, regarded as having\u00a0value. Interest rate Interest rate is defined as the price one pays to borrow money or&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/interest-rates-and-asset-prices\/\">Continue reading <span class=\"screen-reader-text\">Interest rates and asset prices<\/span><\/a><\/p>\n","protected":false},"author":10328,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1566,3127,9],"tags":[3680,8405,8404],"class_list":["post-118309","post","type-post","status-publish","format-standard","hentry","category-daily-factly-articles","category-economy","category-public","tag-asset-monetisation","tag-asset-price","tag-interest-rate","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1700544986},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/118309","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10328"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=118309"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/118309\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=118309"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=118309"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=118309"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}