Interest rates is a monetary policy used by the government to control the supply of money. It affects the value of the currency. When interest rates rises, the currency of a country generally appreciates.
What is the logical behind this argument?
When interest rates rises, people save more as there is more incentive to keep the money in the bank and grow their capital. This is in contrast to a low interest rate where people take the money out to invest else where because if you keep it in banks, you might still get interest but it might not be enough to keep up with inflation. Also when interest rate rises, loans are less as the loans become more expensive to repay.
Consequently, there would be less currency floating in the market. As a result, it would mean that the supply have decreased. This would naturally cause the value of the currency to increase. And this holds true vice versa.
So if you have an insider tip that the government is DEFINITELY going to drop interest rates, quickly buy another currency and wait for the interest rate to drop to make a quick killing.
What is the logical behind this argument?
When interest rates rises, people save more as there is more incentive to keep the money in the bank and grow their capital. This is in contrast to a low interest rate where people take the money out to invest else where because if you keep it in banks, you might still get interest but it might not be enough to keep up with inflation. Also when interest rate rises, loans are less as the loans become more expensive to repay.
Consequently, there would be less currency floating in the market. As a result, it would mean that the supply have decreased. This would naturally cause the value of the currency to increase. And this holds true vice versa.
So if you have an insider tip that the government is DEFINITELY going to drop interest rates, quickly buy another currency and wait for the interest rate to drop to make a quick killing.
