Assume that the interest rate offered on pounds is 5 percent and the pound is expected to depreciate by 1.5 percent. For the international Fisher effect (IFE) to hold between the United Kingdom and the United States, the U.S. interest rate should be:

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According to the International Fisher Effect (IFE), the difference in nominal interest rates between two countries is equal to the expected change in exchange rates. If the UK interest rate is 5% and the pound is expected to depreciate by 1.5%, the US interest rate should be approximately 3.5% (5% - 1.5%). The closest option is 3.43%.

Assume That the Interest Rate Offered on Pounds Is 5