For example, if the average rate of inflation in South Africa over time is 10 per cent per annum and the average rate of inflation in the rest of the world is 3 per cent, nominal interest rates in South Africa will on average be about 7 per cent above the level of nominal interest rates in other countries.
Differences in real rates of interest will reflect differences in the risk factor attached to investment in different countries. In the same example, the exchange rate of the South African rand will depreciate over time by about 7 per cent per annum.