Effect of Interest Rates on Stock Prices Listed on Islamabad Stock Exchange

Background and Introduction

Background:

The writing style of this proposal has been inspired by the proposal written by Keshab Bhattarai of Economic models for peace, growth and poverty alleviation and resolution of conflict in Nepal, July 2010-July 2011.

The paper is intended to find out the relationship between the Interest rates and the stock price of Banks that are listed on the Islamabad stock exchange. The study will be conducted to see to impact does the change in the interest rates affect the stock prices of the banks. The study will help the bankers understand to what extent should they focus on the stock prices after the change in interest rates and this will help the bankers understand and be prepared mentally about the change in the stock prices according to the increase or decrease in the interest rate. The bankers will understand the impact of the interest rates and then they can also focus on the other factors that are involved in the changes in stock prices. There is very little research done on the topic and it will help the bankers of Pakistan understand their economy and how do the external factors affect the stock prices and how can the bank deal with the effect of change in the rate of interest.

Introduction:

Interest:

Interest according to Wikipedia is the amount that the borrower has to pay to the lender. It is a percentage of the principal amount that a person who is taking money (the Borrower) agrees to pay to the person he is taking money from (the lender). It is a fee that the borrower has to pay to the lender for lending him the money. The borrower might need money due to any reason and he does not have it at the time so he or she finds someone willing to lend the money at the time of need.

Principal amount is the actual amount of money the borrower takes from the lender and interest is the money paid to the lender when retuning loan. It is the extra amount that the borrower has to pay to the lender because of the...