Discussion Questions (cont.) 5. Discuss the following insert on Negative Interest Rates: Negative Interest Rates The Brave New World of Finance a) From 2014 onwards economists have been much divided on the perceived wisdom of how to manage the economy. Central bankers were of the opinion that only an interest rate below zero would force a release of savings and generate enough demand to stimulate the economy. That was a point they could not easily reach, since if banks tried to charge negative interest rates, their customers might simply withdraw their cash and stuff it under the mattress, rather than spending it. The countries that have already felt the effects of negative interest rates are: Denmark (2012); Furozone (2014); Switzerland (2015); Sweden (2015) and Japan (2016). In such countries and economic zones, the central banks usually charge about 0.1% interest on a portion of excess reserves financial institutions park with them. The concept of 'Negative Tnterest Rates' turns the world of finance and investing on its head. For example: e Time has no Value in Money: - A fundamental tenant of Finance is that there is a \"Time Value of Money\". Money now is worth more than money later as, as you can invest the money today at an interest rate and get a higher compounded value later. It interest rates are negative, theoretically, companies can borrow money from banks and get paid by the bank for taking the loan. Interest will no longer be an expense but a revenue source; i.. the more a company borrows from the bank, the more profit it can make! Capital Budgeting Decision Rules Reversed: The weighted average cost-of-capital (WACC) is the hurdle-rate that drives all investment decisions, The WACC 13 a composite of the cost of debt and the cost of equity. One component of the cost of equity is the risk-free interest rate (such as the Treasury Bond rate) and another is the market rate of return. With negative interest rates the risk-free return will higher than the market return; thus, reversing traditional Capital Budgeting Decision Rules! Required. Consider other implications of negative interest rates on business decisions