Question

1. Why does Trump want a lower interest rate, or even zero rate?

Many times, Trump blamed the Federal Reserve for rising interest rates. Why does Trump want a lower interest rate, or even zero rate?

2. Why do lenders prefer short-term loans?

Though long-term loans will give lenders higher interest rate, why do lenders prefer short-term loans?

Answer 1

Answer to Question 1

Recently Trump wants to go for a lower interest rate or even zero interest rate and the reason behind that is it will work as a healer or to solve problems related to the economic crisis. Most of the European countries adopted the strategy of a negative interest rate in order to boost economic activities. This procedure of zero interest rate or negative interest rate is applied to save the economy from the worst situation when the financial status of the country is already strong. This will actually help potential investors to make productive business investments out of the borrowed capital at a zero or negative rate of interest.

Answer to Question 2

The lower interest rate will not only remove the economic crisis but based on Trump's strategy this may help him at the re-election process in the next year. The implication of the low-interest rate or zero interest rate will further help the economy to get rid of the downturn and at the time of the great recession.

Answer to Question 3

Lenders prefer short-term loans in order to minimize the chance of a bad debt situation and to maintain a consistent flow of cash in the business during a short period of time. This will not help the lenders to take advantage of the higher interest rate which is obtained in case of long-term loans. The short-term loans will minimize the overall risk associated in the process along with that it will be lenders to earn more in a short time span.

Answer to Question 4

Interest rates are always higher in case of the long-term loans for the lenders but the lenders try to go for short term loans. This will help the potential lenders to recover the loan amount during a short period of time and minimizes the overall risk associated with getting the money back from the creditors. The propensity to earn in case of short-term loan is less in comparison to that of long-term loan but it helps the lenders to maintain a smooth flow of working capital.