The nominal interest rate on a given investment is lower in New Zealand than an

Question

The nominal interest rate on a given investment is lower in New Zealand than an identical investment in Canada. Which of the following will occur according to the International Fisher Effect? O Expected inflation is lower in Canada than in New Zealand. O Expected inflation is higher in Canada than in New Zealand. O The New Zealand dollar will depreciate in nominal terms against the Canadian dollar. O Cannot be determined. QUESTION 13 6.6 The International Fisher Effect assumes that nominal interest rates remain constant. O True False QUESTION 14 6.666 Suppose the real rate of return for a given investment in the US is 10%, while the nominal rate of return is 11 %. According to the Fisher effect, expected inflation should equal 196. True False

Explanation / Answer

Ans 12 option B

Higher nominal rate lead to higher inflation

Ans 13 True

Ans 14 True

Nominal rate = Real rate + inflation

So inflation = nominal - real

= 11 - 10

= 1

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