00:01
So there's a few questions here, right? one, why is interest rates different? well, think about bond, right, bondholders.
00:08
Bondholders, the people who are lending money to these companies, want to maximize profits, right? they want to maximize returns on their investment, right? so countries are different, right? what does that return mean, right? and so the return is equal to the interest, minus.
00:31
Say the change in exchange right, right, minus if government doesn't pay back.
00:47
So if you buy a bond in a different country, if the exchange rate moves against you, you are going to lose or gain money depending on the exchange rate dynamics.
00:59
And you'll also lose if the government doesn't pay you back, right? and so these two things are different across countries, different across countries, right? countries, and so if we think that the return has to be the same across countries, because if the return was not the same across countries, bondholders would deploy their capital differently, differently implies that interest must be different.
01:31
So you need to pay to compensate bondholders for your country's characteristics.
01:37
For example, if you think if your government has a track record of not completely paying back its debts, bondholders are going to demand more interest than to compensate them for that sort of risk, right? so interest rates fundamentally vary because countries are different in ways that affect returns...