Put simply, interest rate is the fee you have to pay to borrow money. It is the cost of using the money which is not yours.
According to the Gresham’s Law, if both the good and bad money are used in an economy, and since the people are aware of the real value of good money, they will try to keep as much good money as they can to themselves, and spend the bad money instead.
Classical Economics, highly regarded as the first school of economic thought, experienced its heyday during the 18th and 19th centuries. Numerous economists of the time such as Adam Smith, Irving Fisher, John Stuart Mills and David Ricardo have contributed to classical economics.
Our willingness to pay a certain price for foreign money must ultimately and essentially be due to the fact that this money possesses a purchasing power as against commodities and services in that country. On the other hand, when we offer so and so much of our own money, we are actually offering a purchasing power as against commodities and services in our own country. Our valuation of a foreign currency in terms of our own, therefore, mainly depends on the relative purchasing power of the two currencies in their respective countries. Abnormal Deviations in International Exchanges, Gustav Cassel,...