How do high interest rates and a high dollar affect a business?how does a high interest rate affect a small business and how does a  high dollar affect a small food business?

Expert Answers
pohnpei397 eNotes educator| Certified Educator

High interest rates affect businesses because they make it hard for those businesses to borrow money.  A small business will typically need to borrow money to get started up or to expand.  If interest rates are high, then they will have to pay a higher price for borrowing the money.  If they can't afford to pay the higher prices, they can't start up or expand.  So higher interest rates means fewer small businesses and they mean that the ones that do exist can't expand as easily.

A strong dollar (I assume that's what you mean by a "high dollar" only affects a small food business if it buys food from outside the country or if it sells outside the country.  If the dollar is strong, Americans can buy things more cheaply from other countries.  On the other hand, they can't export as easily because their goods are more expensive to people in other countries when the dollar is strong.

Does that help?

readerofbooks eNotes educator| Certified Educator

Generally speaking, small businesses get hurt from high interest rates, because they always need to borrow money. This means that they would need to pay back more money every month. Even a few percentage points make a big difference. In addition, some people may not even attempt to start small businesses, because of the interest rates. There is another side to the equation though. If the interest rates are too low, then too many business may start, which may not be a good thing, since they may not be viable.

When it comes to a "high dollar," I assume that you mean inflation. Steady inflation is good, but if the inflation goes up suddenly, all people get hurt.

krishna-agrawala | Student

High interest rate means that people need to pay higher interest or the money they borrow for doing their business. Therefore high interest rate tends to increase the interest cost and therefore reduce the profits of all firms (including small ones) that depend heavily on borrowed funds.

Higher interest rates also reduces demand for goods such as cars and homes which many people buy with borrowed funds. This indirectly reduces the sale of companies selling durable goods purchased with borrowed funds. Generally the sale of a small food business is not likely to be affected much in this way.

High dollar rate refers to the rate at which dollar can be exchanged with other currencies. The exchange rates affect only those companies that are affect by international competition either for the sale of their products or for purchase of the inputs required. Rise in the value of domestic currency - for example of US dollar for USA companies - makes imports cheaper and reduces the realization for the same volume of export in terms of foreign currency. In this way a stronger local currency helps to reduce cost of imports, but makes exports more difficult. In general a small food business is not likely to be affected by changes in exchange rates as it is not likely to face international competition or use imported raw material.