High Interest Rates on the Australian Stock Market

Question: Discuss about theHigh Interest Rates on the Australian Stock Market. Answer: Introduction The topic of research that was under examination was to investigate "the impact of the high-interest rates on the Australian stock market." To unearth the research issue, the researcher resolved to carry out an in-depth analysis of the existing literature. It was carried out with the consideration of assessing the impact of interest rates on the stock market, examining the relationship between the interest rate, cash flow, and value of stocks and the challenges that are faced by Australian companies due to volatile interest rates. As a result of the changes in the economy, the competitive market is proving to be so difficult for organizations as well as investors. The fluctuation in the inflation that affects interest rates and the borrowing cost causes organizations and investors to retard growth and investment. Therefore, there was the need to examine the impact of the high-interest rates on the Australian stock market. The investigation focuses on the impact of the high-interest rates on the Australian stock market. According to Pimentel, and Choudhry (2014), as a result of the fluctuations in interest rates, stock market gets affected, and in return, many organizations face challenges in their strategic planning. The research will be essential to all the stakeholders since it unearths the relationship that exists between the interest rates and the stock markets, the challenges that organizations experiences owing to interest rate volatility and created the relationship that exists between interest rates, return on the stock, and cash flow. Therefore, it will aid organizations and individual in decision making on investments. Research Objectives The aim of the study was: To assess the impact of interest rates on the stock market. To establish the relationship between the interest rate, cash flow, and value of stocks. To find out the challenges faced by Australian companies due to volatile interest rates. Research Questions What were the impacts of interest rates on the stock market? What relationship exists between the interest rate, cash flow, and value of stocks? What are the challenges faced by Australian companies due to volatile interest rates? Research Hypothesis Ho1: Does interest rates negatively affects the stock market by impacting on returns and stock prices. Ho 2: Is there a negative relationship that exists among interest rates, return on the stock, and cash flow. Ho 3: Volatile interest rate creates several challenges for the companies. The Report Structure The report get structured in chapters with chapter one introducing the report, the following chapter is the literature review where past discoveries get illustrated, the chapter three illustrate the methodology that the researcher adapted for the investigation. Chapter four give the findings based on the three hypotheses. The chapter five present the discussion based on the research questions and conclusion is given in chapter 6. Literature Review Introduction The chapter highlight in detail the literature done on past research concerning the impact of high interest rates in the Australian stock market. It begins with examination of the impact of interest rates on the stock market, followed by examining relationship exists between the interest rate, cash flow, and value of stocks and the challenges faced by Australian companies due to volatile interest rates. Impact of Interest Rate of the Stock Market The term interest rate is defined by Jha (2011), as a cost and expenditure incurred by an enterprise for borrowing fund. It is an important element of borrowing costs. Borrowing costs include different charges, and interest on borrowing money and bank overdrafts as an adjustment of interest cost in accounting. The borrowing cost or interest rate are fluctuated and depends on the demand of money in the market and on Federal Reserve monetary policy. If the demand of loan and money increased then it will prompt banks to increase the charges on borrowing money that will raise the borrowing cost of money. Here, the loan or borrowed money assumed as a product and the interest rate known as its price, where the price of a product depends on the demand of that product. It is also depicted by Reifner and Schroder (2012), that the interest on long term debts and short term debts are included in borrowing cost as incurred cost by an individual and an organisation. If, an organisation is incurri ng additional costs such as commission, brokerage, charges of stamp duties, and any other related costs for the arrangement or collection of required capital, then this part of cost will be calculated as a fraction of borrowing cost. Interest rate is the important element of borrowing cost. Therefore, if the interest rate increases then borrowing cost will also increase. Interest rate directly affects stock market because the stock price depends on the companys profitability and performance. In contrast to this, Rooij et al (2011) said that company pays its borrowing cost from its profitability which affects its returns. Therefore, if the interest rate increases then it will directly affect the companys profitability as a result of high borrowing cost. In other words, when interest increases then the company needs to pay more for borrowed money, which will lead to low profitability. In this situation, the stock price of the company may also drop. On the other hand, if interest rate declines then the borrowing money for companies will be cheaper in result of low borrowing cost. The lower borrowing cost can influence the stock price of the company as a rise in stock price. In addition, Osborne (2014) notified that there is a significant relation between interest rate and stock market which is not simple to illustrate. The interest rate works as strength for the stock market as well as weakness. Usually, a person seeks to safety and good return. At the time, when interest rates go down then people are unwilling to put their money in banks and more likely they are willing to invest in other obsession like gold or stock market for better return. The lower interest rates makes cheaper to borrowing money. Due to this reason, the investors pay less for borrowing money that increased profits. Therefore, the lower interest rate influences stock market and works as a strength to increase the performance of stock market and nations currency. On the other hand, if the interest rate increases then it reflects theory of economics as cash become more expensive and the prices of stocks may go down. The higher interest may reduce the flow of cash in market and increas e the borrowing costs for companies. As a result of this, the profitability of the company as well as performance will decrease. Moreover, the decreased performance will determine that the higher interest rate is a weakness for stock market. At the same time, it is evaluated from the study by Nissim and Penman (2003) that the changes in the interest rates are related with the stock returns negatively. They also argued that the negative impact is mainly associated with the changes in the discount rate as an impact of the interest rate consequently affecting stock market. Furthermore, the authors also contended that although the interest rate changes are related to subsequent earnings in a positive manner, however the changes in the earnings are not adequate to compensate the changes in the required return. It is the reason that the net impact of interest rates changes on the stock market is negative Concurrently, Madura (2008) also supports the views of the above authors by stating that the risk-free interest rate is one of the most important economic forces driving prices of the stock market. The author also contended that the relationship between stock prices and interest rates is not constant over time, however when the interest rates increased significantly, there can be seen a decline in the most of the biggest stock markets. Additionally, the author also illustrated that in the late 1990s, the rise in the stock market was partly assigned to the low rates of interest during that period. It shows that the rising interest rates have a negative impact on the stock market or vice versa. Thus, on the basis of above authors' views, it can be discussed that interest rates negatively impact on the stock prices due to reduction in the total earnings and firm's profitability position. At the same time, the study by Liu, Di Iorio and De Silva (2014) also suggests that the short term and long term investment rate can create the significant impact on the stock market in Australia. It is because it affects the growth of cash flows and earnings as well as required return on the investment. Thus, it is clear that interests rates have an impact on the Australian stock market as well as stock markets in other countries. Moreover, on the basis of above discussion, it is analyzed that the hypothesis-1 is true as the interest rates negatively impacts on the stock market. It is because it is evaluated that the interest rates have an effect on the behavior of investors and consumers as well as stock market. It can be discussed that the price of a share fluctuated as a result of expectations of people about the company. For instance, if the company is going back in cutting its growth and generating less profits with high debt expenses due to higher interest rates then the future cash flow of the company will drop. This will lead to lower stock price of the company and lower returns on investments. It can also be analyzed that if most of the companies are facing a declining phase in their share prices then the index of stock market will go downward. At the same time, if an investor gets financial expansion at cheaper interest rate with high returns on investments it will lead to higher stock prices and upw ard market index. Thus, it can be concluded that the interest rate has a great impact on the stock market by impacting on return of investment and stock prices. Evaluation of the Relationship Exists among Interest Rates, Return On The Stock, and Cash Flow In the views of Reilly and Brown (2011) there is not a direct and uniform relationship exists among interest rates, cash flows and the stock prices. They argued the reason behind this is that along with the changes in the interest rates, the likely cash flows from stocks can change and it is difficult to determine that whether the changes in the cash flows will offset or increase the interest rates' changes. The authors explained three potential scenario by considering an increase in the inflation rate in order to determine the relationship among all these variable. The Positive Scenario: As discussed by Reilly and Brown (2011), due to rising inflation, interest rate increases and concurrently business earnings experienced growth as to cover the increased cost, companies are able to increase prices. In this situation, prices of the stock are likely to be fairly stable as the negative effect of rising required rate of return can be offset completely or partially by the increase in the dividends and earnings resulting in the increase in the stock value. Mildly Negative Case: In this scenario, due to inflation, required return and interest rates increase but at the prior rate, it is expected that cash flows continue to grow with the assumption of small increases in the price as compared to increase in the interest rates and the inflation (Reilly and Brown, 2011). This would cause to the decrease in the stock price due to increase in the required return, and constant growth rate of dividend. Negative Scenario: As a result of inflation, the required return and interest rates increase, while the cash flows' growth decreases because during the inflation period, the production cost increases, but many companies are not able to enhance prices at all resulting in major decrease in profit margins. Further, stock prices will decrease significantly because required return will increase and growth will decrease (Reilly and Brown, 2011). It is clear from the above discussion that the changes in the rate of interest affects cash flow position, required return, and earnings that further affects stock market. It also indicates that relationship between stock price and interest rates is not direct. Moreover, the authors also argued that the impact of changes in the interest rate on stock prices depends on what caused the interest rate changes and this event's impact on the alternative common stocks' expected cash flows (Reilly and Brown, 2011). Overall, it can be stated that between interest rates and return on stocks, generally there has been a negative relationship exists. Additionally, it can also be stated that although negative relationship can be true in the context of overall market, however, there can be some industries, which may have positive earnings and cash flow against the changes in the interest rates (Reilly and Brown, 2012). Concurrently, to define the relationship among all these variables, Tas (2008) stated that a negative relationship can be expected between stock prices and interest rates as per the theory of arbitrage. It is because the present value of firms' future cash flows decreases due to higher real interest rates that further causes reduction in the stock prices. The study by Oxelheim and Wihlborg (2008) supports the views of Tas (2008) by stating that there are three reasons due to which changes in the economic value and cash flows occur. In this, the first reason is that changes in the interest rate affect the cost of capital of firms and therefore, impact on the discount rate applied to future cash flows and current interest costs. Secondly, many companies' products' demand depends on the interest rates because the cost of credit impacts on the demand. Lastly, there are also other macroeconomic variables such as inflation, exchange rate, etc, that also tend to be correlated with the inter est rates. Thus, it can be stated that all the three terms are related with each-other. In contrast, Madura (2008) argued that there are three kinds of factors including economic, firm-specific, and market oriented that affect the stock price. In this, the economic factors include economic growth, interest rates, and exchange rate that affect stock prices due to impact on the cash flows of the firms. Thus, it shows that all the three terms such as interest rate, stock prices and cash flows are related to each-other and changes in the one variable significantly impacts on the other variables. Overall, based on the above authors' views, it can be analyzed that the second hypothesis "there is a negative relationship exists among interest rates, return on the stock, and cash flow" is true. It is because it is assessed that continuous increase in the interest rates negatively affects future cash flows that further cause a decrease in the stock prices due to the decrease in the investors' trust. Additionally, based on the above discussion, it can also be concluded that interest rate is an important variable that affects both companies and consumers ability to take credit from the market. Moreover, it can also be discussed that interest rates have the potential to affect firms' cash flow as well as stock prices. Challenges faced by Australian Companies due to Volatile Interest Rates The volatility of interest rates creates several challenges for the companies around the world. At the same time, it is also a key indicator for the stock market and performance of the company. In the words of Homer and Sylla (2011), the word volatility may be defined as a measure of variability over a particular time of period. The volatility in interest rate can be measured in different ways like how much the rate of interest moves down or up on an average basis, measure through standard deviation, and variance. But essentially, measure through: how the interest rate tends to down and up on an average basis over a specific time period is widely used to calculate the interest rate. Mclnerney and Zastawniak (2015) depicted that due to volatile interest rates in the economy, it is difficult to make financial planning for business entities. It is because due to continuous changes in the interest rates, companies faces many financial issues related to borrowing capital or maintain a sus tained capital structure that further affect on the business profitability. The main reason is that it becomes hard to plan and predict profits if the rate of interest on borrowed capital is variable. In Australia, volatility in interest rates is used through many business cycles and boom which resulted in rapid inflation in the economy. Thus, in relation to the third hypothesis, it is analyzed that the companies face many challenges due to volatility interest rates. It is because interest rates directly affect the financial position and financial stability of the company. The challenges such as pricing products, maintain growth rate, manage borrowing costs and cost of capital are generally faced by the companies in the situation of volatile interest rates. According to Malley (2014), in the situation of volatility, it becomes difficult to maintain growth of the company and return on investment. For the reason, the companies face different borrowing costs and operating costs which affect the profitability of the company. Additionally, due to unnecessary volatility of interest rates the companies face challenge about planning to adopt a more vigilant approach for their hiring policies in a significant way. It makes difficult to take decisions related to financial investments. Furthermore, a volatile interest rate incr eases the volatility in economy and in a volatile economy a business faces many risks related to its operational activities. The business firm faces risk of long term uncertainties that make strategic planning complicated. The stable and low interest rates are helpful for the companies to increase their leverage. But, in the situation of volatility, many corporate left susceptible and faced a challenge to manag their financial risks. Moreover, Chadha and Holly (2011), depicted that if the interest rate increases it will make companies less price competitive in the global market. It is because due to the increase in the interest rates, companies cannot make an appropriate pricing strategy because it affects the companys profitability and balance sheet. It may be illustrated as diminished export orders, fewer jobs, and lower profits of the company. For example, the decline in export orders creates the challenge of managing business certainty in the competitive market. Thus, it can be concluded that the volatile interest rate is not good for companies because it affects the cost of capital and the financial stability of companies and leads to an unstable capital structure. It can also be stated that many challenges are faced by companies due to the interest rate changes resulting on impacting their profitability position and long-term survivability. Methodology Introduction The section begins by giving the techniques that the researcher used in the investigation of "the impact of the high-interest rates on the Australian stock market. The chapter examine the adopted design, philosophy, method employed, data collection techniques and the ethical concerns. Research Method The methodology that was adopted in the investigation was the qualitative method of research. The method was selected because it entails the use of secondary data in the investigation were past experiences and observation recorded get analyzed. The researcher used journals and literature books to get data. In the research literature, the researcher examined the impact of interest rate on the stock market, evaluated the relationship that exists between interest rates, return on the stock, and cash flow and the challenges faced by Australian companies due to volatile interest rates (Taylor, Bogdan and DeVault, 2015). Research Design The research design used was qualitative as it employs post-positivist affirmations in data collection and that it utilizes variables as well as testing of hypothesis. Also, it permits collection of data as well as evaluation with the use of research instruments which allows the researcher to get quantifiable facts. Therefore the qualitative strategy design was appropriate as it relates to the fact that discoveries in research are best achieved via precise investigation. Also, since the researcher utilizes secondary data, the method was most appropriate at there is room for the use of secondary data in getting facts, ideas and past discoveries that relate to the impact of the high-interest rates on the stock market in Australia (Zikmund et al., 2013). Research Philosophy As per the study by Easterby-Smith et al., (2009), philosophy in research relates to the assumptions relating to the topic of research. In the investigation on the impact of the high-interest rates on the Australian stock market, the researcher utilized positivism and intepretivism as the philosophical positions. In looking at the positivism paradigm, the research assumed that the information that relates to the impact of the high-interest rates on the Australian stock market can be obtained and analyzed scientifically. Therefore the approach used by the researcher augments very well with the philosophy as it points out that if the belief is stable, then it can be analyzed in an objective manner. Also, the interpretivism philosophical aspect assisted the researcher in obtaining efficacy opinions on the impact of the high-interest rates on the Australian stock market and particularly on the analysis of hypothesis 2-the relationship between the interest rate, cash flow, and value of in ventory. Research Approach The qualitative data concerning the impact of the high-interest rates on the Australian stock market was analyzed with the use of secondary data. A deductive approach was employed in the review of literature of past discoveries on the impact of the high-interest rates on the Australian stock market. The researcher analyzed journals, articles and literature books. The obtained data was employed to accept or reject hypothesis. In most cases in the three hypotheses, the data obtained permitted the researcher to accept the hypotheses as true. The deductive approach assisted in the researcher to come up with facts in relation to the observation made. Research Strategy The investigation relied on observation and scrutiny of past discoveries on the impact of the high-interest rates on the Australian stock market. The selection of the observation technique was because of a number of factors. One, is the type of research topic selected by the researcher was such that it was necessary to involve huge volume of secondary data and this element deemed sufficiently adequate with the method selected. Secondly, the use of secondary data was to permit the researcher to get qualitative data so that objective conclusion could be made as well as assessing the consistency level of studies done in the past. The observation method entails the gathering of information with the use of past facts and ideas. The method was employed as it was in line with the top under investigation since the topic requires that the researcher evaluates large volume of secondary data. Large amount of secondary data was sufficient so that the results obtained become valid and reliable. Ethical Concerns With the view of the objectives of the research, the research sought authority from relevant sections from the university where one was issued with a letter indicating the researchers research topic and permission to conduct research. It is espoused that ethics are necessary in that it give the sources of information consent that the research is doing research based on permission. With this in mind, the researcher ensured that there is good relationship between the people approached to assist in getting secondary data in libraries and journals. The relationship was created with the production of assent form indicating what I am doing together with the authorized signatories from the university. Since the researcher employed secondary data, there was no need to conceal the sources of information but rather the researcher acknowledged every source of information for the purpose of academic integrity. Findings Introduction The chapter entails reporting the findings obtained in the analysis of secondary data. The section is divided according to the three research hypothesis. Analysis of Hypothesis 1 The hypothesis 1-does interest rates negatively affect the stock market by impacting on returns and stock prices. Concerning hypothesis 1, it is clear that interest rates impact on the stock market in a negative manner. The reason is that the interest rates influence the behaviour of the investors, customer as well as the stock market. Also, the price of a share gets fluctuating over time affecting the organizations business and hence peoples expectation about the company gets affected. It is evident from the literature that when organizations are experiencing declining phase in stocks, the stock market gets affected and goes downward. It leads to increased stock prices and rises in the market index. Hence the interest rates have the impact largely on the stock exchange by influencing on the return on investment as well as the prices of stock. Organization pays borrowing cost through its profits which in turn affect the returns and hence when there is an increase in interest rates, t hen there is a direct impact on the companys profitability. Analysis of Hypothesis 2 The hypothesis 1-is there a negative relationship that exists among interest rates, return on the stock, and cash flow. Based on hypothesis 2, it is apparent that the fluctuation in interest rates has the direct influence on cash flow, return; earnings and these will, in turn, affect the stock prices. It is noted that there is no direct relationship between stock prices and interest rates. The dependent components on the changes in interest rates are the factors that led to the changes in interest rates. It is these factors that impact on the stock prices as well, as the expected cash flows. There existed the negative relationship between the return on stock and interest rates. However, even though there the existence of negative connection in the market, there is organization which gets positive earnings and cash flow with the changes in the interest rates. When the interest rates gets anticipated to increase as a result of inflation because cash flow keeps on growing when assumed t hat there is the small increase in price as contrasted with interest rates. The result is a decrease in stock prices because of needed return in growth and dividend Analysis of Hypothesis 3 The hypothesis 1-Volatile interest rate creates several challenges for the companies. In hypothesis 3, it is established that organizations experience volatility challenges owing to volatile interest rates because the interest rates have the direct impact on the financial stand and stability of the organization. These pose challenges of product pricing, maintaining of growth rate, and the management of borrowing costs. Also, companies experiences difficulties in keeping the growth of the organization steady for the steady return on investment. It results in the organization experiencing different costs of borrowing and has a direct impact on the companys proceeds. Also, as a result of unnecessary interest rates volatility, organizations experiences difficulties in their policies for hiring processes thus creating difficulties in the decision making. Additionally, in a volatile economy, organizations experiences operational difficulties as business faces challenges of long-term uncert ainties and complicates further the strategic planning of the organization Based on the analysis, all the three hypothesis, the hypotheses were proved. It is established in hypothesis one that there is a negative impact on the changes in interest rates that affect stock market negatively by impacting on the prices of stock and returns. In hypothesis two, it is proved that there is a negative relationship that exists between cash flow, interest rates, and the stock market. In the third hypothesis, it is proved that changes in interest rates pose greatest challenges to organizations as it gives organizations difficulties in strategic planning. Discussion Introduction The chapter give the discussion of the finding obtained from chapter 4. The section is structured such that all the three research questions get evaluated based on the hypotheses. The discussion on the impacts of interest rates on the stock market, relationship exists between the interest rate, cash flow, and value of stocks as well as the challenges faced by Australian companies due to volatile interest rates gets discussed. The Impacts of Interest Rates on Stock Market In relation to the research question one, the investigation established that when an organization reduces on growth and generate fewer proceeds as a result of high debts resulting from high-interest rates, then the consequences are that cash flow of the organization drops thus leading to low stock price as well as lower returns of the group. It is evident from the literature that when organizations are experiencing declining phase in stocks, the stock market gets affected and goes downward (Apergis and Lau, 2015). It leads to increased stock prices and rises in the market index. Hence the interest rates have the impact largely on the stock exchange by influencing on the return on investment as well as the prices of stock (Byrne, 2014). The interest rates have a direct impact on the stock market since the stock price relies on the profitability as well as the performance of the organization. Organization pays borrowing cost through its profits which in turn affect the returns and hence when there is an increase in interest rates, then there is a direct impact on the companys profitability and hence causes the cost of borrowing to rise. It implies that an increase in interest rates result to the organization paying more of interest on the amount of money borrowed and hence low proceeds in the long run. In this instance, the stock price of the organization will decrease. Consequently, when there is s decrease on interests rates, then the companies will enjoy since the cost of borrowing money will be cheaper due to the decreased cost of borrowing. The results are that the stock price of the organization gets affected in a positive manner since it is going to rise. The relationship between stock market and interest rate exist. The interest rates work in a manner that acts as the strength of the stock market and at the same time as weakness. When there is a decline in banks interest rates, people are not willing to invest their monies in the bank but instead they seek to invest in other investments where there is the possibility of getting good returns such as the stock market or gold for better proceeds. On the other hand and based on the economic theory, as the interest rate increases, money become expensive and it implies that the prices of stock will decrease. The result is that the flow of cash will be reduced as a result of high-interest rates and hence leading to increased cost of borrowing for organizations. The impact is that profits and performance of the organization declines and the stock price also become weaker in the stock market. Also, the changes in the interest rates have a negative relationship with stock returns whereby the negative impacts get linked to the changes in the discount rates which are an impact of the interest rates that affect the stock market. Additionally, they contend that even though the changes in interest rates get associated positively with earnings, the changes in earnings are not adequate to the needed returns changes, which is the reason of the negative stock market impacted by the changes in the interest rates. Liu, Di Iorio and De Silva (2014), suggest that the rate of long-term, as well as short-term investment can create an influence in the stock market in Australia as it affects the flow of cash, earnings as well as return on investment. Therefore, it is apparent that there is an impact on the stock market in Australia which gets influenced by the interest rate changes. The Relationship between Interest Rate, Cash Flow and Value of Stocks It is the research question two where it examines where there is a relationship existing between the interest rate, cash flow, and value of stocks. In the examination of the relationship between the interest rate, cash flow, and value of inventory, it gets established that there existed the negative correlation between the return on stock and interest rates. The interest rates, cash flows and the stock prices have no relationship that is direct because there are changes in the interest rates, and the cash flow as well will likely change. It's hard to determine the variations in the cash flow will offset or increases that change in interest rates. As a result of inflation, the rates of interest increases and thus the proceeds gained by business increases so that they are capable of increasing prices. The prices of stock under these circumstances are fairly stable since the adverse effect of the rate of return gets offset partially or wholly by the rise in dividend as well as earning t hat result in increased stock (Reilly and Brown, 2011). The interest rates get anticipated to increase as a result of inflation because cash flow keeps on growing when assumed that there is the small increase in price as contrasted with interest rates. The result is a decrease in stock prices because of needed return in growth and dividend (Reilly and Brown, 2011). Owing to inflation, the expected returns and interest rates go up whereas the cash flow decrease leading to the cost of production going up. Under these, organizations are not in a position to enhance prices and the outcome is the decrease in profit margins. Therefore the stock prices decrease tremendously because growth is affected and is probable to decrease (Reilly and Brown, 2011). According to Tas (2008), the negative relationship based on the theory of arbitrage get expected because the present value of organizations cash flow decreases as a result of higher interest rates that lead to the reduction in stock. Oxelheim and Wihlborg (2008), augment these by stating that there are three causes of changes in economic value as well as cash flow. First, interest rates fluctuation affects the cost of capital resulting in influencing on future applied discount rate to cash flow as well as current interest cost. Secondly, the demand for products depend on interest rates since the cost of credit influences demand and lastly, other microeconomic variables like exchange rate, inflation in related to interest rates. Therefore, the three components have a relationship to one another. Hence it is evident that the three factors interest rate, stock prices, and cash flows are related to each other. Any change in one of the factors will significantly affect the other variables (Valadkhani, Chen and Kotey, 2014). Therefore, there exist a negative relationship between interest rates, returns, and cash flow. Any increase in interest rates affects future cash flow causing a decrease in stock prices and hence investors trust dwindles. The interest rate, therefore, affects companies and clients capability of taking credit from the market and stock prices (Berument and Froyen, 2015). Challenges Faced by Australian Companies due to Volatile Interest Rates When examining the challenges faced by Australian companies due to volatile interest rates, it was found out that volatility causes an adverse impact on the cost of capital, financial stability and unstable capital structure of the organization. Interest rates for organizations posses challenge globally, and it is an indicator of the companys performance and the stock market. Based on Mclnerney and Zastawniak (2015), volatility creates difficulties in doing business because the continued changes in interest rates affected the financial planning of organizations. Hence borrowing becomes difficult as it may affect the business profitability. In Australia, the volatility of interest rates get employed by organizations for business and result in sharp inflation in the economy. As per Malley (2014), companies experiences difficulties in keeping the growth of the organization steady for the steady return on investment. It results in the organization experiencing different costs of borrowing and has a direct impact on the companys proceeds. Also, as a result of unnecessary interest rates volatility, organizations experiences difficulties in their policies for hiring processes thus creating difficulties in the decision making. Additionally, in a volatile economy, organizations experiences operational difficulties as business faces challenges of long-term uncertainties and complicates further the strategic planning of the organization (Van Deventer, Imai and Mesler, 2013). It is illustrated by Chadha and Holly (2011) that increases in interest rates makes teams less competitive regarding price given the competitive global market. The net outcome is that there is a creation of fewer jobs, fewer export orders, and little proceeds to the organization. The volatili ty of interest rates is not useful for organizations since it causes an adverse impact on the cost of capital, financial stability and unstable capital structure of the organization. The impact is that the profitability of the organization as well as the long term survivability. Conclusion After examining the literature on impact of the interest rates on the stock market, it can be concluded that both terms are associated with each-other. It can be concluded that the changes in the interest rates negatively impacts on the stock market. It is because the interest rate changes affect the required rate of return, future cash flows, and firm's profitability and earning position consequently affecting the stock market. For example, it can be stated that the increase in the interest rate reduces the cash flows' growth, and increase the required return causing a decline in the stock market. In addition, it can also be concluded that the changes in the interest rates create several challenges such as unstable capital structure, difficult to pricing the product, and preserve the growth rate. Thus, it becomes essential to maintain stable interest rate in an economy to ensure the success of the companies as well as the stock market. Additionally, it can also be concluded that all the hypothesis are proved. It is because it is found in relation to the first hypothesis that the interest rates changes affect negatively the stock market by impacting on the prices of the stock as well as returns. Similarly, second hypothesis can also be proven as it is found that a negative relationship exists among the variables namely cash flow, interest rates, and the stock market. Lastly, the third hypothesis can also be proven as it is found that companies face various challenges due to the changes in the interest rate. References Agrippino, S.M. and Rey, H., 2013 Funding Flows and Credit in Carry TradeEconomies.Liquidity Funding Markets, p.211. Apergis, N. and Lau, M.C.K., 2015 Structural breaks and electricity prices: Further evidence onthe role of climate policy uncertainties in the Australian electricity market.Energy Economics,52, pp.176-182. 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