Interest Rate Differentials

Interest rate differentials refer to the difference between the interest rates offered by two different countries or currencies. When one country has a higher interest rate than another, investors might move their money there to earn better returns. This movement influences currency values, with higher rates often leading to currency appreciation. Essentially, interest rate differentials help explain the flow of capital across borders and contribute to currency exchange rate fluctuations. They are an important factor in the global financial markets, reflecting economic conditions and investor expectations about future interest rate changes.