According to the IFE, if British interest rates are lower than U.S. interest rates a. the...
According to the IFE, if British interest rates are lower than U.S. interest rates
a. the British inflation rate will decrease.
b. the British pound will appreciate against the dollar.
c. today's forward rate of the British pound will equal today's spot rate.
d. the British pound will depreciate against the dollar.
e. the British pound's value will remain constant.
Homework Answers
If British interest rates are lower than US interest rate, then the people take their money from the British pound and invest in the US dollar. Therefore, the British pound will depreciate against the dollar. (option d)
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According to the IFE, if British interest rates are lower than
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to 39) According to the international Fisher Effect, if an investor purchases a five-year U.S. bond...
to 39) According to the international Fisher Effect, if an investor purchases a five-year U.S. bond that has an annual interest rate of 5% rather than a comparable British bond that has an annual interest rate of 6%, then the investor must be expecting the at a rate of at least 1% per year over the next 5 years. A) British pound; appreciate B) British pound; revalue C) U.S. dollar; appreciate D) U.S. dollar, depreciate
26. Assume that US, and British investors require a real return of 2%. If the nominal...
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27. The interest rate in the U.K. is 7%, while the interest rate in the U.S....
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Which of the following statements is true? a. None of the above. b. If U.S. consumers’...
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The International Fisher Effect (IFE), Purchasing Power Parity (PPP) and Interest Rate Parity (IRP) are three...
The International Fisher Effect (IFE), Purchasing Power Parity (PPP) and Interest Rate Parity (IRP) are three very important theories in international finance, each with its own predictions and implication. Which of the following is correct? IRP suggests that a change in interest rate differential will not change the currency's forward premium/discount. According to purchasing power parity (PPP), if a foreign country's inflation rate is below the inflation rate at home, home country consumers will increase their imports from the foreign...
Assume that U.S. interest rates are 6%, while British interest rates are 79. If the international...
Assume that U.S. interest rates are 6%, while British interest rates are 79. If the international Fisher effect holds and is used to determine the future spot rate, the forecast would reflect an expectation of: appreciation of US dollar value over the next year. depreciation of pound's value over the next year. no change in pound's value over the next year, not enough information to answer this question, A and B are both correct.
Today's spot rates are U.S. $0.6879/Swiss franc and U.S. $1.5583/British pound sterling. How many pounds must...
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If the interest rate in the U.S. is expected to be 5 percent for the next year. The interest rate in the U.K. is expected to be 8 percent for the next year. Uncovered IRP suggests that the: Multiple Choice O U.S. dollar should depreciate against the pound by about 3 percent. O British pound should depreciate against the dollar and the dollar should appreciate against the pound, both by about 3 percent O British pound is should appreciate against...
to 39) According to the international Fisher Effect, if an investor purchases a five-year U.S. bond that has an annual interest rate of 5% rather than a comparable British bond that has an annual interest rate of 6%, then the investor must be expecting the at a rate of at least 1% per year over the next 5 years. A) British pound; appreciate B) British pound; revalue C) U.S. dollar; appreciate D) U.S. dollar, depreciate
26. Assume that US, and British investors require a real return of 2%. If the nominal U.S. interest rate is 15%, and the nominal British rate is 13%, then according to the IFE, the British inflation rate is expected to be about what percentage points below the U.S. inflation rate, and the British pound is expected to appreciate by what percentage?
27. The interest rate in the U.K. is 7%, while the interest rate in the U.S. is 5%. The spot rate for the British pound is $1.50. According to the international Fisher effect (IFE), the British pound should adjust to a new level of:
The International Fisher Effect (IFE), Purchasing Power Parity (PPP) and Interest Rate Parity (IRP) are three very important theories in international finance, each with its own predictions and implication. Which of the following is correct? IRP suggests that a change in interest rate differential will not change the currency's forward premium/discount. According to purchasing power parity (PPP), if a foreign country's inflation rate is below the inflation rate at home, home country consumers will increase their imports from the foreign...
Assume that U.S. interest rates are 6%, while British interest rates are 79. If the international Fisher effect holds and is used to determine the future spot rate, the forecast would reflect an expectation of: appreciation of US dollar value over the next year. depreciation of pound's value over the next year. no change in pound's value over the next year, not enough information to answer this question, A and B are both correct.
Several factors affect the exchange rate of a currency with another currency. Which of the following statements are true about the factors that have an impact on exchange rates? Check all that apply. When a government limits imports and restricts foreign exchange transactions, its currency's value tends to increase relative to other currencies. An increase in inflation tends to increase the currency's value with respect to other currencies with lower inflation. If a government intends to prevent its currency's value...
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