In early 1996, the short-term interest rate in France was 5

Business Sep 16, 2020

In early 1996, the short-term interest rate in France was 5.7 percent, and forecast French inflation was 2.8 percent. At the same time, the short-term German interest rate was 2.6 percent and forecast German inflation was 1.6 percent.

Based on these figures, which would you borrow from France or Germany?

Expert Solution

I will borrow in the country where the interest rates and inflation rates are low:

German's interest rate and the inflation rates are lower than the French.

So we will borrow from the Germany

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