Assume that U.S. interest rates are 6 percent, while British interest rates are 7 percent. If the international Fisher effect holds and is used to determine the future spot rate, the forecast would reflect an expectation of:
A) appreciation of the pound's value over the next year.
B) depreciation of the pound's value over the next year.
C) no change in the pound's value over the next year.
D) There is not enough information to answer this question.

Question

Quizplus · Accepted Answer

According to the international Fisher effect, a country with a higher interest rate should experience depreciation in its currency's value. Therefore, in this scenario, the British pound is expected to depreciate against the U.S. dollar over the next year.

Assume That U