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'High real interest rates can be a cause for celebration, not alarm.'

Date Submitted: 01/17/2003 03:02:39
Category: / Business & Economy / Finances and Investments
Length: 5 pages (1316 words)
When a person is giving the use of his/her money to someone else, he or she is giving up spending the money today. Obviously the lender would expect something in return, a compensation for forgoing consumption until the borrower returns the money. This compensation is the real interest rate. Real interest rate increases when the demand for capital and borrowing is high in an economy, and falls when it is low. If the real …
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…flow of funds between both the countries. "as financial markets begin to be liberalised, and funds begin to flow without restrictions, real interest rates between countries begin to converge also." (jain) High real interest rates are usually good in the way that a lot of capital would flow into the country. It is not a cause to be alarmed about, as more capital inflow would help the country's economy in a number of various ways.
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