According to the international Fisher effect, if euro investors expect a 5% rate of domestic inflation over one year, and a 2% rate of inflation in the US, and require a 3% real return on investments over one year, the nominal interest rate on one-year euro Treasury securities would be:

Question

Quizplus · Accepted Answer

The international Fisher effect states that the nominal interest rate is the sum of the real interest rate and the expected inflation rate. Here, the expected inflation rate is 5%, and the required real return is 3%, so the nominal interest rate would be 5% + 3% = 8%.

According to the International Fisher Effect, If Euro Investors Expect