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Pragmatic Capitalism

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Interest Rate Differentials

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I’m curious about interest rate differentials in the context of currency exchange rates. I notice many commentators reference 2-year rate differentials when discussing current exchange rate pressures (for example, 2Y U.S.-Germany spread vs. EURUSD). My question is why does 2 years seem to be the common term that is used as opposed to 1- or 5- years?

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Posted by Matt
Posted on 03/03/2017 4:34 PM
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I don’t think there’s anything magical about 2 years. It’s just a liquid and consistent spread that reflects a blended overnight rate and market rate.

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Cullen Roche Posted by Cullen Roche
Answered on 03/08/2017 2:10 PM
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