I’m currently having some trouble understanding some material from Oanda’s training regimen. I was wondering if there was anyone that understands and can walk me through what the statement means.
The statement I just can’t seem to wrap my head around:
“As an investor you may be happy with a 5 percent return when the basic lending rate is 2 percent. However, if short-term interest rates rise and the lending rate jumps to 6 percent, your 5 percent return is no longer so attractive, and there are probably other options that could generate more income for your investment.”
i think they mat also be referring to a situation where one is borrowing capital at a short-term rate of 2% and investing it in, say, a long-term fund that generates a return of 5% (i.e a net gain of 3%). A common practice when borrowing is cheap. But it the short-term borrowing rate then rises to 6% then one is losing 1% after the next loan rollover and would have been better in some other investment.
At least I think that might be it unless others have brighter ideas?
You got to keep your eye on the bond market and rates. Short term as well as long term rates have a big effect on the markets. Sudden changes can come when shorter term rates are more favorable to long term rates.
