What Moves the Forex Market - Interest Rate Differential Model

!±8± What Moves the Forex Market - Interest Rate Differential Model

There are several different monetary models that try to explain why the forex market moves. One such model is the real interest rate differential model.

The real interest rate differential theory states that exchange rate movements are determined by a nation's interest rate level. Countries that have high interest rates should see their currencies appreciate in value, while countries with low interest rates should see their currencies depreciate in value.

Once a nation raises its interest rates international investors will discover that the yield for that nation's currency is more attractive and will therefore buy that nation's currency fully expecting it to appreciate.

This model also stresses that one of the key factors in determining the severity of an exchange rate's response to a shift in interest rates is the expected persistence of that shift. Simply put, a rise in interest rates that is expected to last for five years will have a much larger impact on the exchange rate than if that rise were expected to last for only one year.

There is a great deal of debate among international economists over whether there is a strong and significant link between changes in a nation's interest rate and currency price. The main weakness of this model is that it does not take into account a nation's current account balance, relaying on capital glows instead. Indeed, the model tends to overemphasize capital flows at the expense of numerous other factors. Absent these factors, the model can be very useful since it is quite logical to conclude that an investor will naturally gravitate toward the investment vehicle that pays a higher reward.

What Moves the Forex Market - Interest Rate Differential Model

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Commentary on Mark 8:35 - 38

!±8± Commentary on Mark 8:35 - 38

These verses at the end of Mark 8 are some of Jesus' last teachings to His disciples. Jesus knew what was going to happen to Himself and His disciples in the near future, and we can glean some lessons from His teaching.

35. For whosoever will save his life shall lose it; but whosoever shall lose his life for my sake and the gospel's, the same shall save it.
36. For what shall it profit a man, if he shall gain the whole world, and lose his own soul?
37. Or what shall a man give in exchange for his soul?
38. Whosoever therefore shall be ashamed of me and of my words in this adulterous and sinful generation; of him also shall the Son of man be ashamed, when he cometh in the glory of his Father with the holy angels.

Every time I read verses 35 and 36, I am reminded of Solomon's writings in Ecclesiastes. In a nutshell, Solomon had everything that any man could ever want. He was very wise, had immense riches, was the most powerful man in the world, had women everywhere, and still he was miserable.

Solomon talks about how he decided to try just about everything to find happiness. In the end, he says everything was only vanity. But in all of this, Solomon says that he never lost his wisdom. I believe this means that he knew that what he was doing was in vain, but he did it anyway!

Doesn't this sound like America? We rush, rush, rush after what we believe will please us knowing that in the end, even if we get it what we want, we will not be happy because we just want more.

Verse 38 is an interesting verse. Someone with children explained it to me this way. He said he was very proud of his kids. No matter where he went, he wanted to talk about what his kids were doing. If anyone ever talked about their kids, he always had a story to tell as well.

But he also wanted his kids to be proud of him. He loved when they bragged on him and when they told others about how good a dad he was.

I think this is the way Jesus is. He wants to be proud of us, and He wants us to be proud of Him. He wants to be able to introduce us in person to the Father with joy when eternity comes. We don't want to hear Jesus say, "Yeah, this is Bob. He is saved but never really did much on earth. He didn't try to get to know Me, and he certainly didn't tell anyone about Me." We want to hear Jesus say, "Welcome, thy good and faithful servant. Enter now into the joys of My kingdom."

Commentary on Mark 8:35 - 38

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