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ECON5319-Lecture10-2011

# ECON5319-Lecture10-2011 - The Global Economy ECON 5319...

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The Global Economy ECON 5319 Interest Rates and Exchange Rates William J. Crowder Ph.D.

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What is an Interest Rate? To understand the concept of an interest rate we need to familiarize ourselves with the concept of present value. A dollar paid to you one year from now is less valuable than a dollar paid to you today. That is because a dollar received today can be saved and earn interest.
Future Values 2 3 Let = .10 In one year \$100 X (1+ 0.10) = \$110 In two years \$110 X (1 + 0.10) = \$121 or 100 X (1 + 0.10) In three years \$121 X (1 + 0.10) = \$133 or 100 X (1 + 0.10) In years \$100 X (1 + ) n i n i

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