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Homework answers / question archive / Which of the following statements is TRUE in regard to the International Fisher Effect?   A

Which of the following statements is TRUE in regard to the International Fisher Effect?   A

Finance

Which of the following statements is TRUE in regard to the International Fisher Effect?

  A.

The Fisher effect suggests that the nominal inflation rates of two countries differ because of the difference in expected interest rates between the two countries.

  B.

The Fisher effect suggests that the nominal interest rates of two countries differ because of the difference in expected inflation between the two countries.

  C.

The real rate of interest represents the return on investment to savers after accounting for expected unemployment.

  D.

The Fisher effect predicts that countries with relatively high interest rates will see their currencies appreciate.

  E.

Both (b) and (d) are correct.

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Answer: B.The Fisher effect suggests that the nominal interest rates of two countries differ because of the difference in expected inflation between the two countries.

The Fisher effect predicts that countries with relatively high interest rates will see their currencies depreciate.