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Despite the high interest rates compared to other countries in Turkey, investors can not invest their...

Despite the high interest rates compared to other countries in Turkey, investors can not invest their money (dollars) to banks in Turkey. What could be the reason for this? Please make your comments only considering the increase and decrease of dollar.

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Answer #1

This is the case because of a theory in international economics known as the secured interest equality condition (CIP). As per this theory, If the interest rate in one country in as compared to another country, at that point to guarantee that there are no exchange benefit openings accessible for any financial specialist, the cash of that country will deteriorate viz-a=viz the other country. In this manner, in the issue, regardless of the higher interest rates in Turkey, the estimation of Turkish Lira will fall (devaluation) as compared to the US Dollar and there will be no motivating force for US financial specialists to put their dollar assets in Turkey.

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