 When we talk about interest rates, it is important to understand the difference between nominal interest rate and the real interest rate. So when I differentiate between the nominal and the real interest rates, it means that I am considering the important role played by inflation. So when we talk about the interest rates, again, we need to understand that the inflation affects the value of the interest rate. Because if I promise that you lend me one lakh rupees and I give you a 10% interest by the end of a year, then it makes sense that you feel that I am getting 10% of one lakh as a fee amount which I am forging or lending to one lakh. Similarly, if the prices increase by 12%, then when I give you a 10% interest by the end of a year as a fee amount, then you are in a loss instead of making a profit because the interest that I gave you, that was 10%, but your purchasing power went down by 12%. So when we are considering the interest rate, when we are considering the investments or we match the interest rate with it and decide that we should borrow or lend money on a suit, then it is very important that we consider what is the contribution of inflation in that. So when we are considering the inflation, it means then we can look at the nominal interest rate and the real interest rate. So nominal interest rate, it is basically the interest rate on a bond which is the promised amount of money you receive per unit you lend. Like I told you, I am going to borrow 10% on a suit, so this 10% would be the nominal interest rate. Real rate of return or real interest rate is the interest rate which we calculate when we consider the value of inflation and adjust the nominal interest rate. So now you must be wondering how inflation is considered, so there are different ways to measure inflation. Different countries use different ways, generally we use a concept to assess inflation or to measure it, that is consumer price index which is abbreviated as CPI. In Pakistan, we have three or four ways to measure inflation by calculating the government. The most widely used concept is consumer price index which we abbreviate as CPI. And CPI basically accounts for the average change in prices over time. And what we have here in Pakistan is an agreement on the basis of which you compare that prices have gone up and the nature has gone down, that is a month. So the government has made a basket on the basis of every month in which the goods and services are included, so there is no physical basket, this is a conceptual basket in which 487 items are considered which are used to spend a normal person's daily life. They have services, they have goods, they have vegetables, fruit, ghee, things like that, cooking oil, they have put all these things and made a basket. So in every month, the prices are considered on these 487 items, so for example in January, you took 487 items and the list you made, the average person's daily life, the things you used, you considered them, you accounted for their value, then in February, you accounted for the value of those things, then you make a difference in the number of percent increase or decrease. So that gives you the mayor of CPI. In addition, we use wholesale price index in Pakistan, we use sensitive price index and we have introduced a new concept, that is the core inflation index or core inflation rate in which you remove the food and drink items and take out the core items and consider them and take out the value of inflation. So when we talk about the real interest rate, what we are doing is we are considering the nominal interest rate, we are considering the CPI and we are trying to find out the real interest rate by using these two values. Let's look at the formula, which will help us in understanding how the real rate will be calculated. So we considered the nominal interest rate, then we considered the inflation rate. We deducted the inflation rate from the nominal interest rate and divided it with the 1 plus rate of inflation. So you will have this real rate calculated. So for illustration, I have an example. So let's discuss this example. Suppose, any financial institution has offered you that we will give you the rate of return on any instrument, which is 8% or inflation, that turned out to be 5%. So if you want to take out the real rate of interest or the real rate of return, it would be simply 8% minus 5% divided by 1 plus 5%. So this will be 0.03 divided by 1.05 and this will give you 0.02, 857. Or if we convert this to percentage, it would be 2.85%. So just to compare, the nominal rate of return that you were getting was 8%. So if you look at the nominal value, it is quite high, 8%. But when you adjust the inflation by considering the value of inflation, then you realize that it is only 2.85%. So 2.85% and 8% are quite different. So therefore it is important to consider the inflation when we are trying to make the session by only considering the nominal interest rates. So by keeping this in mind, we have observed that there are several countries who have started giving inflation adjusted rates. For example, in the UK, there is index-linked bonds which were launched in 1981. Similarly, in the USA in 1997, we saw that the inflation-protected securities which are being abbreviated as TIPS were launched by the US government, in which the return of inflation is adjusted. So in order to make a better decision when you are investing in a financial instrument, it is essential to consider not only the nominal interest rate or the nominal return. We need to consider the real return also by analyzing or looking at the values of the inflation.