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9 Jan 2019

FINANCE 358: INTERNATIONAL FINANCE

What is the International Fisher Effect? Is the basic PPP relationship [e = Pi – Pj] relevant in explaining the International Fisher effect?

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Nestor Rutherford
Nestor RutherfordLv2
10 Jan 2019

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FINANCE 358: INTERNATIONAL FINANCE

Discuss the determinants of foreign exchange rates. Include a detailed discussion of the Monetary PPP model: e* = Pi – Pj = [M, p, r], and its addition of (a, w) to determine the spot rate [e].

FINANCE 358: INTERNATIONAL FINANCE

What are the uses of Balance of Payments data? Describe the Current and Capital accounts of the Balance of Payments. Is the trade balance sensitive to exchange rates? Is the current account relevant in assessing macroeconomic-macrofinancial issues in the U.S. economy?

Sally Franklin is a financial advisor to Jamie Curtess, a U.S.citizen interested in learning more about how her investments willbe affected by exchange rates and differences in interest ratesinternationally. Franklin has gathered the following informationbased on Curtess’s investment interests.

The current spot exchange rate: $1 = €0.74.

Europe United States

Nominal 1-year interest rate: 4% ?

Expected annual inflation: 2% 1%

Franklin also gathers the following information:

Switzerland South Africa

Nominal 1-year interest rate: 5% 7%

Expected annual inflation: 3% 5%

screenshot of question:https://d.pr/i/4RwRXI

According to the international Fisher relation, what is the1-year nominal interest rate in the United States?

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