You observe that the inflation rate in the United States is 1.0 percent per year

Question

You observe that the inflation rate in the United States is 1.0 percent per year and that T-bills currently yield 1.5 percent annually. Use the approximate international Fisher effect to answer the following questions.

What do you estimate the inflation rate to be in Australia, if short-term Australian government securities yield 5 percent per year? (Enter your answer as a percent rounded to 1 decimal place, e.g., 32.1.)

What do you estimate the inflation rate to be in Canada, if short-term Canadian government securities yield 8 percent per year? (Enter your answer as a percent rounded to 1 decimal place, e.g., 32.1.)

What do you estimate the inflation rate to be in Taiwan, if short-term Taiwanese government securities yield 10 percent per year? (Enter your answer as a percent rounded to 1 decimal place, e.g., 32.1.)

You observe that the inflation rate in the United States is 1.0 percent per year and that T-bills currently yield 1.5 percent annually. Use the approximate international Fisher effect to answer the following questions.

Explanation / Answer

Answer:a RUS - hUs = RFC - hFC
0.015 - 0.010 = 0.05 - hFC;

hFC = 4.50 percent

Answer:b

0.015 - 0.010 = 0.08 - hFC;

hFC = 7.50 percent

Answer:c

0.015 - 0.010 = 0.10 - hFC;

hFC = 9.50 percent

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.