Money Interest Rate Formula

Money Rate Formula

Money Rate can be calculated from the real rate and inflation rate by fisher effect. It is important to note that money rate is roughly a sum of inflation rate & real rate.

(1+m) = (1+i)(1+r)

m=money rate

i= inflation rate

r= real rate

Example

Inflation rate in country = 5%

Real rate in country = 6%

Money Rate=?

Solution

(1+m) = (1+i)(1+r)

Money rate = (1.05)(1.06)-1

= (1.113)-1

=.071

=11.3%