A small car dealer, which buys and sells second hand cars, has £5,000 in the bank in savings and has no bank loans. Interest rates rise substantially. What is the MOST LIKELY to be the effect on this firm?
Select ONE answer:
- It might be better off because its car sales are likely to rise and it will receive more interest on its savings
- It might be worse off, although it will receive more interest on its savings, its car sales will fall
- It might be worse off because its car sales will fall and it will receive less interest on its savings
- It might be better off because its car sales will rise although it will receive less interest on its savings
- It might be worse off because its car sales will not change and it will receive less interest on its savings
What is the definition of an interest rate?
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This is multiple choice question is suitable for Business Studies KS4 classes.
The answer is 2 – It will receive more interest on its £5,000 in savings, especially as it has no bank loans outstanding. However, it is likely that car sales will fall, as buying a car is seen by many consumers as a luxury item, so any increase in interest rates is likely to make purchasing a car more expensive for those who have to borrow money to buy one.
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