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How Important Are Interest Rates to an Efficient Functioning of the Global Capital Market
A capital market is a place that has complex financial schemes for the exchange of material values expressed in monetary terms. Financial transactions aim to optimize the use of money and what it expresses material values. Remarkably, the decision to invest is, in a sense, a choice between consumption in the present and the future. Current investments in companies bring dividends to investors, and investments in start-ups can bring dividends in the future. Therefore, the interest rate is important for the efficient functioning of the market. Since it reflects the value concerning the choice of the first or second option, in other words, the interest rate, as it were, compensates for the lost dividends in the present since money has the greatest value in the present.
Therefore, if a person or company wants to start a business immediately and take out a loan from the bank, they pay the interest rate for using the money now, cashing out the banks liquid assets that bring him a profit since every new day the bank has money in the present moment. Notably, the use of the interest rate financial mechanism becomes more and more important as the economy grows and the world market expands. This is because capital markets are also growing, and the relationships between market agents are becoming more complex. In this context, the interest rate becomes a basic, elementary tool for interaction between agents and even provides the possibility of such interaction.
The interest rate, as an important element of the functioning of the capital market, receives attention from new developing technologies that optimize the process of calculating the benefits and justification of interest rates. In particular, technology provides transparency, which in turn is a significant contribution to the stability of the economy. Therefore, many experts predict increased stability in the economy in the future due to the growth in the prevalence of technologies that provide clear and fair financial relations.
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