Listen to a Business English Dialogue About Real interest rates
Nova: Hi Vanessa, do you know what real interest rates are in business and finance?
Vanessa: No, I’m not familiar with them. What do they mean?
Nova: Real interest rates are the interest rates adjusted for inflation, representing the true cost of borrowing or the real return on investment.
Vanessa: Oh, so it’s like accounting for inflation when considering interest rates?
Nova: Exactly. Real interest rates help investors and policymakers understand the actual purchasing power of their investments or loans.
Vanessa: How do real interest rates affect borrowing and lending decisions?
Nova: When real interest rates are high, borrowing becomes more expensive, and lending becomes more profitable, while low real interest rates encourage borrowing and discourage saving.
Vanessa: Can you give an example of how real interest rates are calculated?
Nova: Sure, for example, if the nominal interest rate is 5% and the inflation rate is 2%, the real interest rate would be 3%.
Vanessa: Are real interest rates influenced by economic conditions?
Nova: Yes, real interest rates are influenced by factors such as inflation expectations, monetary policy, and economic growth.
Vanessa: How do real interest rates impact investments like stocks and bonds?
Nova: Real interest rates affect the attractiveness of different investments, with higher real interest rates generally leading to lower stock prices and higher bond yields.
Vanessa: Thanks for explaining, Nova. Real interest rates seem like an important concept for understanding the economy.
Nova: No problem, Vanessa. They’re a crucial tool for investors and policymakers to make informed decisions about borrowing, lending, and investment.