International Loan and Currency Depreciation Explained

[JackSeal]

To understand an international loan and currency depreciation let us think of it as a loan taken to buy 10 grams of gold. In December 2017, when you took the loan, the price was 29,209.

Now you have to return the same 10 grams of gold.
The price as of yesterday was 53,926 for 10 grams.
The gold also carries an interest of 0.1%. So in five years you have to give 0.5% extra gold, which works out to 0.05 grams. So you have to return 10.05 grams.

So how much money will you require to return this gold today?
It is 53,926 x 1.05 = 55,960.8

Thus although you are returning just .05 extra gold but because of depreciation of value of rupee, you need 55,960.8 rupees to return a loan whose value was 29,209. So how much extra have you paid?

55906.8 - 29209 = that is 26697

The loan was 29209 and you paid 26697 extra in 5 years. How much is that in percentage? (26697/29209) x 100 = 91% extra.
How much extra per year = 91 / 5 = 18.2% extra.

That is how depreciation of value of rupee affects our international loans that were like free!!!

We have to repay them in international currency, US Dollars. It is not a loan that is in Indian Rupees. And Rupees has been falling against the US Dollar.

[a_sagittarian]

What happens to the 10gms gold i bought ??

[Jatka Bandi]

😐bottiga economics kooda teleeni @jbourne kosam