According to the international Fisher effect, if U.S. investors expect a 5 percent rate of domestic inflation over one year and a 2 percent rate of inflation in European countries that use the euro, and if they require a 3 percent real return on investments over one year, the nominal interest rate on one-year U.S. Treasury securities would be:

Question

​According to the international Fisher effect, if U.S. investors expect a 5 percent rate of domestic inflation over one year and a 2 percent rate of inflation in European countries that use the euro, and if they require a 3 percent real return on investments over one year, the nominal interest rate on one-year U.S. Treasury securities would be:

Quizplus · Accepted Answer

According to the international Fisher effect, the nominal interest rate in a country is equal to the sum of the real interest rate and the expected inflation rate in that country. In this case, the U.S. nominal interest rate would be:

3% + 5% = 8%

Therefore, the correct answer is E, 8 percent.

​According to the International Fisher Effect, If U

According to the International Fisher Effect, If U