Interest rates and inflation — OpenTuition Forums

Aauditorzonline13y ago

Im failing to link between the two, and, its impact on the underlying currency and assets, is there a rule perhaps I could just learn that would allow to quickly link, the interest rates, inflation rates, currency and assets?

Will be extremely grateful!

Ddazhong070313y ago#1

I am not answering you, but I want to express my opinion.
In this word, both production sector and banking sector are making profit, otherwise they do not exist. And their profit margin after risk adjustment should be roughly the same, otherwise the investors will shift their capital from one sector to another. Inflation represents the profit margin for production sector, and interest represents the profit margin for banking sector.
That is why future exchange rate can be predicted by both PPPT and IRPT.
John sir, pls correct me or add more valuable advice.
Thank you.

John MoffatTutor13y ago#2

dazhong's reasoning is correct.

As far as a rule linking interest rates etc.., you have the formulae on the formula sheet linking interest and inflation (the Fisher formula) and interest and inflation to exchange rates (PPP and IRP).