Interest Rate (Global)
Borrowing cost influenced by: central bank policy, risk, inflation expectations.
Formula
Real Interest Rate = Nominal Rate − Inflation Rate
Real World
When the US Federal Reserve raised interest rates aggressively in 2022–23, capital flowed into the dollar, weakening emerging market currencies like Turkey's lira and raising their borrowing costs.
Exam Focus
Always link interest rate changes to a second-order effect — currency movement or investment levels — to access higher marks.
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