Interest rates are now a key simulator for growth in most nations. Interest rates have been used as a short-term tool as well as a medium-term tool by central banks to control growth in their nations and also control inflation. After the second world war, interest rates and interest rate futures have been the key to the direction of global financial markets be it stocks, bonds, currencies or even precious metals.

Currency carry trade (virtually non-existent right now) is basically taking advantage of the interest rate difference between two nations and currency price difference for financial gains and investment.

Globalization has resulted in open economies (with investor protection norms) where anyone can invest anywhere. Most of the global stock exchanges as well as global treasury markets are dependent on global investors for higher volumes as well as price rise. Interest rates and interest rate trends is one the key factors which helps globetrotting ultra-rich people and hedge funds decide which nation to invest and for what period.

Corporates in high interest rate nations like India take debt from low interest nations like Japan and the USA to finance business expansion. Any rise in interest rates in low interest rate nations can adversely affect corporate profitability in India and other nations where there is very high corporate debt.

The American bond markets is dependent on global investors. The USA has a huge trade deficit. If other central banks do not invest in American treasuries, then there can be negative interest rates in the USA. The Chinese are the largest investors in American treasuries along with Japan. China has a massive trade surplus with the USA. But it uses the surplus to invest in American treasuries. Interest rates determine the nations treasury yields which in turn affects foreign inflows and currency price.

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