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Can someone explain negative interest rates to me?
Posted on 4/13/15 at 11:24 am
Posted on 4/13/15 at 11:24 am
This is something I've never really been able to wrap my mind around. Probably because I'm not very smart.
I try to force myself to read the finance articles in the Economist, even when I don't understand them all that well.
So, in the case of negative interest rates, the borrower is actually making money off the transaction?
I try to force myself to read the finance articles in the Economist, even when I don't understand them all that well.
So, in the case of negative interest rates, the borrower is actually making money off the transaction?
1
Posted on 4/13/15 at 11:36 am to UGATiger26
Well good. At least it's not just me.
Posted on 4/13/15 at 12:29 pm to UGATiger26
In a deflationary environment, a bank would not be able to make money on deposits, which is how retail branches operate. In order to pay for the security provided by the financial institution, negative interest rates are required.
In the bond market, it's a similar concept. The dollars paid out in the future will be worth more than the dollars received today, so a bond can have a positive "real" yield while having a negative nominal yield.
In the bond market, it's a similar concept. The dollars paid out in the future will be worth more than the dollars received today, so a bond can have a positive "real" yield while having a negative nominal yield.
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