BU288 Lecture Notes - Lecture 2: Nominal Interest Rate, Fundamental Analysis, Capital Flight
Document Summary
Bu288 lesson 2 different countries must sell for the same price, when their price is expressed in the same currency. Inflation: seems to be a function of the growth in its money supply . The rate of change in countries" relative prices depends on their relative inflation rates. Interest rates: reflect expectations about inflation (in countries where inflation is expected to be high, interest rates will be high. The international fisher effect states that for any two countries, the sport exchange rate should change in an equal amount but in the opposite direction to the difference in nominal interest rate.
