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International Fisher Effect

Nominal annual interest rates in Cyprus are 7.8431%. The spot rate for the Cyprus pound (CYP) is $1.50 and the Cyprus pound is expected to adjust to a future spot rate (one year from today) of $1.53. According to the international Fisher effect (IFE), what is the nominal interest rate in the United States? Do not approximate.

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Hubert Koch
Hubert KochLv2
28 Sep 2019
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Related questions

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?

1-One year ago the spot rate of U.S. dollars (USD) for Australian dollars (AUD) was USD 0.9782 per AUD. Since that time the rate of inflation in the U.S. has been 4% greater than that in Australia. Based on the theory of Relative PPP, the current spot exchange rate of U.S. dollars for Australian dollars should be approximately

2-Assume a nominal interest rate on five-year U.S. Treasury Bills of 1.10% and the yield on an 5-year Treasury inflation indexed security is -1.42%. Using the Fisher Effect Equation, what is the approximate expected annual rate of inflation in the U.S. over the next 5 years ( in 4 decimals)?

3-Assume the current U.S. dollar-British spot rate is $1.6303 per pound. If the current nominal one-year interest rate in the U.S. is 2.5% and the comparable rate in Britain is 3.5%, what is one-year forward exchange rate ( in 4 decimals)?

4-Assume the current U.S. dollar (USD)-Mexican Peso (MXN) spot rate is $12.8338 per dollar. If the current nominal 6-month annual interest rate in the U.S. is 0.45% and the comparable rate in Mexico is 3.5%, what is 6-month forward exchange rate ( in 4 decimals)?

5-The Argentine peso was fixed through a currency board at Ps1.00/$ throughout the 1990s. In January 2002 the Argentine peso was floated. On January 29, 2003 it was trading at Ps3.20/$. During that one year period Argentina's inflation rate was 20% on an annualized basis. Inflation in the United States during that same period was 2.2% annualized.
A) If PPP holds, the exchange rate in January 2003 would be Ps/$ ( in 4 decimals).
B) The Argentine peso undervalued on an annualized basis by %( in 2 decimals).

A corporate investment manager needs to invest $1,000,000 for the next 6 months. The current nominal rate of interest in the United States is 5%, while the nominal rate of interest in Argentina is 8%. Which of the following statements is MOST correct? Select one:

a. The manager is indifferent between investing the funds in the United States or Argentina because real returns will always be the same in the end.

b. The manager may decide to invest the funds in the United States due to the international Fisher effect, which suggests inflation in Argentina may make the extra interest income worth less in one year.

c. The manager cannot invest in Argentina because his company is investing dollars.

d. The manager should invest the funds in Argentina and make an extra $30,000 for the year.

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