the firms have lower interest expenses under variable rate loans, especially when the interest rates are low. This means that they have more resources that can be utilized for expansion, research and development, or even dividends to the shareholders.

Most corporate refinancing existing debt occurs when favorable interest rates provide firms with the opportunity to take advantage of low borrowing costs. Refinancing is most rewarding when interest rates are falling but is less attractive when rising. When falling, corporations may delay refinancing in the hopes that rate cuts soon will happen, but when rising, they will search for alternative financing structures such as fixed-rate loans to avoid future risk.

Interest rates play a significant role on investment banking transactions, from mergers and acquisitions (M&A) to leveraged buyouts (LBOs) and capital market transactions including initial public offerings (IPOs). On part and parcel, determinants of investment banking are partly supply of capital as well as the value of firms which all depend on interest rates.