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Ask the Institute

DATE: December 10, 2012

QUESTION:

Can you discuss the relationship between foreign currencies, the stock market and interest rates?

ANSWER:
Many traders attempt to make a connection between currency values and the rise or fall of the stock market. While a change in foreign exchange rates may coincide with a change in the value of the market, the relationship may likely be rooted elsewhere --- namely in the world of interest rates. Whatever the cause for the change in interest rates, there will also be changes in the attractiveness of saving and investing.

For example, if interest rates decline, then money market accounts will pay less interest. As a result, money market accounts will become less attractive and borrowing money to buy stocks will be more attractive. To learn more about the relationship between foreign currencies, the stock market and interest rates, view this week's segment of "Ask the Institute."


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