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?作者: benbenxiong 时间: 2011-7-13 16:02
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.
