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dvilayphet

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tT
发表于 2011-7-13 16:02 | 只看该作者

DC:FC interest rate difference

one, different, into, difference, countries
When we're asked to use interest rates for two different countries, when do we subtract one rate from the other vs. when do we devide one into the other?
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benbenxiong

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2#
发表于 2011-7-13 16:02 | 只看该作者
According to my understanding dividing/ multiplying is the exact method of Fisher Equation. Adding/ subtracting is the linear approximation.

Some questions are to use particular method explicitly. I personally prefer multiplying/ dividing. The difference is very small.

Note that if you multiply or divide use one plus rate, ie, (1+r), not r as in additions/subtractions.

Hope this help.

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llxx

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3#
发表于 2011-7-13 16:02 | 只看该作者
so when in doubt, divide. got it. thanks!

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