Subject: Cross Culture Management Instructor: Chris. Quach, Ph.

D Group members:

1. Allisa 2. Elena 3. L Th Thy Linh 4. Lu Nguyn K Tm 5. Trn T Trinh 6. Nguyn oan Nh 7. Hng

The reason Why National bank decrease the Interest rate?

INTRODUCTION

Key interest rate

Commercial banks borrow money from the central bank at the key interest rate

Instrument to influence the money and capital market

Interest rate for loans and investments are based on the key rate

Decreasing the key interest rate

Decreasing key interest rate

Stabilized Macroeconomic situation or even upward trend

Loans are cheaper Consumption and investments increase

Low interests for bank-savings

GDP increases

Unemployment rate decreases

Risk of inflation

Increasing the key interest rate

Aim: absorb the money supply surplus

Increasing key interest rate

Macroeconomic situation is slowing down

Loans are more expensive Consumption and investments decrease

High interests for bank-savings

GDP decreases

Unemployment rate increases

Risk of inflation is combated

GERMANY

Germany
Member state of the European Union Member of the Economic and Monetary Union Euro as a currency instead of the Deutsche Mark since 1999 The European Central Bank responsible for currency and price stability since 1999 Economy Drivers
Exports of technical equipment and machinery Highly skilled labour force Reforms for long-term growth

UNEMPLOYMENT

1998-2005 the main economical focus on unemployment decrease As a result the relatively modest increase in unemployment during the recession in 2008-09

Gross Domestic Product (GDP)

GDPs growth in 2009 to 2010 The export is a driver of the recovery Export demand vs. domestic demand in the next years

INFLATION

Expectations of recession-fighting interest rate cut by the European Central Bank

12.00 10.00

8.00
6.00 4.00 3.00 2.00 0.00 1999 -2.00 -4.00 -6.00 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 4.25 4.25 2.75 2.00 2.00 2.25 2.75 1.00 1.50 0.75 4.00 4.25

GDP growth (annual %) Unemployment, total (% of total labor force) Inflation, consumer prices (annual %)

United State

General information
From 1971 to 2012 : averaged interest rate of 6.2 % Peak : 20.0 % in March 1980 Low record : 0.25% from Jan 2009 up to now Decision authority : Board of Governors of the Federal Reserve (Board) Federal Open Market Committee (FOMC)

Interest Rate From 2008 to 2012

2008: Financial crisis initially caused by by the bankruptcy of Lehman Brothers. (Federal Reserve) decided to decrease the interest rate from 1% to 0.25% =>> prevent the United States from being sunk into a recession

Purposes
To stabilize the economy and financial system To free up the credit market

To maximum the employment

To stabilize prices

To moderate long-term interest rate

Cons

Pros

Debate
On Sep 2012 Federal Open Market Committee (FOMC) stated to to keep nearly zero interest rate at least to mid - 2015 to strengthen economic recovery Some economists argue Fed doesnt see any hope for a recovery in the next years!!

Conclusion
The nearly-zero interest rate from the end of 2008 up to now has saved the economic from recession to some extent.

Vietnam

Brief of situation
In 2007, joined WTO

GDP increase to 9% within 3 year The interest rate : 8.75%

Decrease the inflation In 2008, a big recession occurred Increase the interest rate (to 14%) and tight up The inflation : the credit 28.24% (Sep 2008)

Purpose
to provide favorable condition for enterprises to get the capital to maintain and expand their business to minimize the pressure from paying interest for bank loans to increase unemployment rate and promote

exportation
to push the GDP to increase.

INFLATION

INTEREST RATE

GDP annual rate began to grow up from quarter 3 in 2009.

GDP of Vietnam After decreasing the interest rate

UNEMPLOYMENT

Conclusion
Key interest rate is an important instrument to regulate the economy but its not the only one. The key purposes to decrease interest rate is theoretically similar in the world Interest rate itself is not a miracle solution In reality, the decision to decrease the interest rate and its effectiveness depends on: motivation, economic situation, characteristics of each country etc.