Interest Rates and Other Critical Determinants of...

Interest Rates and Other Critical Determinants of Investment Spending in Bangladesh Background Investment, which is a spending devoted to enhancing or maintaining the existing stock of capital in the economy provides goods and services necessary for better standard of living. Moreover, it has greater importance as a policy tool. Policymakers often try to achieve target growth in GDP by influencing the level of investment. They do so by undertaking policies that influence the rate of interests. The underlying assumption is that investment is negatively related with the rate of investment. Historically, economic theories have suggested negative relationship between investment and interest rates. Changes in either nominal or real†¦show more content†¦To investigate the impact of interest rates on investment spending, we use a simple regression function for the two variables but add several slightly different variables. The starting point of model formulation is; I= f (LR, SR, S, Y, ER)Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â… (1) Where, I = Investment LR = Interest rate on loans SR = Interest rate on savings S = Gross Domestic Savings Y = GDP ER = Exchange rate Investment is not a function of interest rate alone. Factors like income, savings, and saving rate along with lending rate are important issues in setting the level of investment. That is why we need to incorporate all of them in the regression function and test the marginal impact of each of them on investment. Accordingly, the estimating equation used in this study is; where, the term e is the stochastic error term that captures the impact of all other variables not included in the model. Model Validation The coefficient , which gives the change in investment due to one unit change in lending rate is expected to be negative. Other slope coefficients ( are expected to have positive values since their associated variables, interest on savings, savings, and income respectively should influence investment positively. The coefficient can take positive or negative values depending on how a rising trend in exchange rates influence the level of domestic saving. The expected impact is determined by theShow MoreRelatedAn assignment on critical analysis of FDI policy and Import Export policy In Bangladesh5993 Words   |  24 PagesAn assignment on critical analysis of FDI policy and ImportExport policy In Bangladesh MGT-405: International Business Submitted to: Mohammad Shariat Ullah Assistant Professor Department of Management University of Dhaka Submitted by: Tapash Chandra Paul Roll: 35 Section: A; Batch: 17th Department of Management University of Dhaka Submission Date: March 23, 2014 Table of Contents Pages No (A) Foreign Direct Investment in Bangladesh 1.0 Introduction 1.1 FDI and its Concepts 1.2 Importance ofRead MoreEffect of Interest Rate on Foreign Exchange Rate5776 Words   |  24 PagesEFFECT OF INTEREST RATE ON FOREIGHN EXCHANGE RATE (EVIDENCE FROM ASIAN REGION) ABSTRACT: In this article we investigate the impact of a change in U.S. short term interest rates relative to those in some Asian countries like Bangladesh, Thailand, Japan, Pakistan, and China on the bilateral foreign exchange rates between the U.S dollar and each country’s currency. 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