Commander in Pips: Yes, you’re absolutely right. At the end of this part I want to give you an important notification. You may speak about possible appreciation or depreciation of some currency due higher rates only if it compares with currency approximately of the same credit quality. For instance, AUD/USD – AUD credit rating by S&P is AAA while US is AA+ (was AAA also). Carry here is about 4.0-4.25% - these are acceptable currencies to compare. If you will take a look at say USD and Russian ruble you will see even greater carry – around 8.0%, but Russia has BBB+ rate – this is 6 grades lower than the US. Each grade costs approximately 0.5%. So, the real spread adjusted for credit risk will be around 5% - almost the same as AUD/USD, but inflation in Russia is much higher – 8-15% in different years. That’s why using USD/RUR spread absolutely does not mean that RUR will appreciate in time. Keep it in mind, when you will assess some exotic pairs. That’s being said, this correlation works with major currencies or exotic but of approximately equal credit quality. Increasing of the spread between some economies leads to appreciation of the currency with the greater rate. Since all interest rates in country links with rate of Central Bank – it has a tendency to grow in other rates also. Hence, it leads to higher return on all bonds in the country. If a country could give investors higher return of the same credit quality – this is quite attractive for them, isn’t it? Just be sure, as we’ve said that you compare interest rates with the same maturity also. Otherwise your analysis will be vain. Also I want to give you some web resources where you can find data on interest rates: 1. Bloomberg 2. Bonds online 3. Eurostat; 4. Fed Reserve of New York; 5. Fed Reserve 6. FRED 7. Econstats There is a lot macro data also – may be you will dive in fundamental analysis and inter-markets correlations, who knows… P.S. This lesson was written by Sive Morten, who has been working for a large European Bank since April of 2000, and is currently a supervisor of the bank's risk assessment department. Sive's knowledge of forex market and banking industry is vast and quite complete. If you have any specific questions about forex, banking industry, or any other financial instruments, please post themon the next page and Sive should answer soon. Note: FPA ranks are earned in the battles against scam, not in the classroom.