Nominal interest rates in Cyprus are 7%,while nominal interest rates in the U.S.are 5%.The spot rate for the Cyprus pound (CYP)is $1.50.According to the international Fisher effect (IFE),the Cyprus pound should adjust to a new level of:

Question

Quizplus · Accepted Answer

According to the International Fisher Effect, the currency with the higher nominal interest rate will depreciate. Since Cyprus has a higher interest rate, the CYP should depreciate, leading to a lower exchange rate. $1.47 reflects this depreciation.

Nominal Interest Rates in Cyprus Are 7%,while Nominal Interest Rates