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Unformatted text preview: CD in IndiaIn India, it is short term money market instrument which fulfill the short term need of commercial banks and customers of CD can get rate of interest which is calculated by money market demand and supply. It is usually known as fixed deposit.  CriticismCD interest rates closely track inflation. For example, in one situation interest rates may be 15% and inflation may be 15%, and in another situation interest rates may be 2% and inflation may be 2%. Of course, these factors cancel out, so the real interest rate is the same in both cases. In this situation, it is a misinterpretation that the interest is an increase in value. However, to keep the same value the rate of withdrawal must be the same as the real rate of return, in this case, zero. People may also think that the higher- rate situation is "better," when the real rate of return is actually the same. Also, the above does not include taxes. When taxes are considered, the higher-rate situation above is worse, with a Also, the above does not include taxes....
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This note was uploaded on 02/29/2012 for the course ECON 4223 taught by Professor Johnp.willen during the Spring '12 term at UCLA.
- Spring '12