US real interest rate and emerging market financial crisis

This article talks about the correlation between US real rates and emerging market financial crisis.

Essentially a carry trade of borrowing in a low rate country and buying/investing/speculating in a high rate country is effected by rapid increases in the real rate in the low rate country.

There are plenty of investments which rely on and extrapolate current growth rates to justify higher Net Present Value (NPV), via higher future cash flows, without taking into consideration the effect of foreign source investment dollars having the ability to bid up the prices of services, goods and investments within the high rate country.

Have a play with the NPV calculator in Excel or whatever spreadsheet you use to see what the effect of increasing the growth rate of cash flows does the NPV.

Have Fun

Paul