Big Drive Auto Ii

Big Drive Auto: Monetary Considerations and Interest Rates

University of Phoenix

Big Drive Auto: Monetary Considerations and Interest Rates

The success of a corporation as well as their suppliers, vendors, and down-line customers is dependent upon effective planning and operating decisions and those decisions are influenced by the fluctuation of interest rates. A low interest rate will enable competitive rates and services which are passed along in the corporation’s production and sales chains while high interest rates will increase operating costs, reduce revenues, and incur the loss of clientele.

The monetary aggregates and interest rates are directly related to the money supply which impacts a country’s economy. Additionally, monetary variables such as a business cycle (downturn in the market – cyclical change) will invoke changes in the economy; expansion and recession. However, monetary policy may be highly effective in slowing expansions and controlling inflation but less reliable in pushing the economy from a severe recession (McConnell and Brue, 2004, p. 281). Big Drive Auto is not immune to rise and fall of interest rates or monetary policy. As a business that not only sells products, but also provides services and parts, vacillating interest rates will impact every aspect of their operation.

Big Drive Auto, located in Stuttgart Germany, is a business within the European Union (EU) whose central bank and currency is the European Central Bank (ECB) and the Euro respectively. The ECB is one of the most important central banks as it is responsible for the monetary policy of the Euro-Zone. As of 2009, the Euro-Zone (EZ) is comprised of 16 countries that have adopted the Euro and it is the second-most traded currency on the forex (foreign exchange) market (XE, Euro Member Countries, 2010).

The objective of the ECB’s monetary policy is similar to that of the central bank in the U.S., the Federal Reserve (Fed); control the interest rates and maintain...