Interest rates

[Chelsea f.c.]

I.e. A treasury bond is a lump sum payment at a date if its 1 million and interest rates are 1% then I pay x such that x(1.01)=1 million I.e. I discount 1 million buy the interest I expect if it sells for more I would borrow money from bank and buy bond if less reverse... same in markets if Aussie bonds better I borrow us and buy Aussie bonds and to do this I sell us currency and buy aud... selling us depreciates us and buying aud appreciates aud

[Chelsea f.c.]

At uni you'd model the situation with equations... you can get the general gist by answering this question though... and it seems you should know at least a bit as it's a deliberate question.

[DoctorTwo]

Thanks for your help guys, I think I understand it better now.

[Chelsea f.c.]

Plus it may help to know why your wrong... if overseas companies borrow in Australia that's a capital outflow as they borrow aud which they than convert to say usd I.e. Sell aud buy usd so aud depreciates and usd appreciates and they then invest in the us which increases GDP in America... however interest repayments would be capital inflow as they make repayments in aud... but interest rates are set by rba and they sell bonds so it's easier to think about it that way =)