The correct answer is: Higher interest rates reduce the level of business investment only when that investment is financed by borrowing.

Higher interest rates will reduce the level of business investment, even if that investment is funded via internal cash reserves. The business will consider the opportunity cost of using the cash for investment (i.e. the interest forgone from not putting the money in the bank).

The main function of the money market is to enable businesses and government to obtain liquidity (definition).

Low real interest rates tend to result in high levels of credit based sales as the cost of credit is low.

The real rate of interest is the difference between the nominal rate of interest and the rate of inflation (definition).