3 ms·

What is the difference?

• SantalBlush 5y ago
  The nominal interest rate doesn't account for inflation. Suppose countries A and B have nominal rates of -1% and 2%, respectively. Now suppose their inflation rates are 2% and 6%. That makes their real interest rates -3% and -4%, so if you borrow from country A and park the money in country B, you are losing money despite B having a higher nominal rate. Moreover, what OP is describing (infinite money mechanism) is an arbitrage situation, so any risk-free profit opportunity would quickly vanish and parity would be reached.