International Fisher Effect

The international Fisher effect (IFE) suggests that:

• a home currency will depreciate if the current home interest rate exceeds the current foreign interest rate.

• a home currency will appreciate if the current home interest rate exceeds the current foreign interest rate.

• a home currency will appreciate if the current home inflation rate exceeds the current foreign inflation rate.

• a home currency will depreciate if the current home inflation rate exceeds the current foreign inflation rate.

Because there are a variety of factors in addition to inflation that affect exchange rates, this will:

• reduce the probability that PPP shall hold.

• increase the probability that PPP shall hold.

• increase the probability the IFE will hold.

• none of the answers

According to the IFE, if British interest rates exceed U.S. interest rates:

• the British pound’s value will remain constant.

• the British pound will depreciate against the dollar.

• the British inflation rate will decrease.

• oday’s forward rate of the British pound will equal today’s spot rate

Given a home country and a foreign country, the international Fisher effect (IFE) suggests that:

• the nominal interest rates of both countries are the same.

• the inflation rates of both countries are the same.

• the exchange rates of both countries will move in a similar direction against other currencies.

• none of the above

If interest rates on the euro are consistently below U.S. interest rates, then for the international Fisher effect (IFE) to hold:

• the value of the euro would often appreciate against the dollar.

• the value of the euro would often depreciate against the dollar.

• the value of the euro would remain constant most of the time.

• the value of the euro would appreciate in some periods and depreciate in other periods, but on average have a zero rate of appreciation.

According to the international Fisher effect, if investors in all countries require the same real rate of return, the differential in nominal interest rates between any two countries:

• follows their exchange rate movement.

• is due to their inflation differentials.

• is zero.

• is constant over time.

Assume that the U.S. and Chile nominal interest rates are equal. Then, the U.S. nominal interest rate decreases while the Chilean nominal interest rate remains stable. According to the international Fisher effect, this implies expectations of _______ than before, and that the Chilean peso should _______ against the dollar.

• lower U.S. inflation; depreciate

• lower U.S. inflation; appreciate

• higher U.S. inflation; depreciate

• higher U.S. inflation; appreciate

Assume that U.S. interest rates are 6%, while British interest rates are 7%. If the international Fisher effect holds and is used to determine the future spot rate, the forecast would reflect an expectation of:

• appreciation of pound’s 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

How old was Gollum(Sméagol) in the last movie of Lord of the Rings?

• About 589 years old

• About 859 years old

• About 189 years old

• About 200 years old