sachin_patel
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- Jun 18, 2026
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Below text is taken from CFAI.
Long-term capital flows may have the effect of reversing the usual relationship between short-term interest rates and the currency. This is explained by the fact that a cut in short-term rates would be expected to boost economic growth and the stock markets, thereby making long-term investments more attractive. In this environment, central banks face a dilemma. Whereas they might want to raise interest rates to respond to a weak currency that is threatening to stimulate the economy too much and boost inflation, the effect may actually be to push the currency lower. Hence, the effectiveness of monetary policy is much reduced.
on one hand they have been talking about long-term and short term. and on other hand they just put a statement out about raise interest rates.. Now which one is this? long term or short term?
Long-term capital flows may have the effect of reversing the usual relationship between short-term interest rates and the currency. This is explained by the fact that a cut in short-term rates would be expected to boost economic growth and the stock markets, thereby making long-term investments more attractive. In this environment, central banks face a dilemma. Whereas they might want to raise interest rates to respond to a weak currency that is threatening to stimulate the economy too much and boost inflation, the effect may actually be to push the currency lower. Hence, the effectiveness of monetary policy is much reduced.
on one hand they have been talking about long-term and short term. and on other hand they just put a statement out about raise interest rates.. Now which one is this? long term or short term?