Assume That the International Fisher Effect (IFE) Holds Between the U.S

Assume that the international Fisher effect (IFE) holds between the U.S. and the U.K. The U.S. inflation is expected to be 5%, while British inflation is expected to be 3%. The interest rates offered on pounds are 7% and U.S. interest rates are 7%. What does this say about real interest rates expected by British investors?

A) real interest rates expected by British investors are equal to the interest rates expected by U.S. investors.
B) real interest rates expected by British investors are 2 percentage points lower than the real interest rates expected by U.S. investors.
C) real interest rates expected by British investors are 2 percentage points above the real interest rates expected by U.S. investors.
D) IFE doesn't hold in this case because the U.S. inflation is higher than the British inflation, but the interest rates offered in both countries are equal.