If Nominal British Interest Rates Are 3 Percent and Nominal

question 40

Multiple Choice

If nominal British interest rates are 3 percent and nominal U.S. interest rates are 6 percent, then the British pound (£) is expected to ____ by about ____percent, according to the international Fisher effect (IFE) .

• A) depreciate; 2.9
• B) appreciate; 2.9
• C) depreciate; 1.0
• D) appreciate; 1.0
• E) None of these are correct.

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Definitions:

Net Cash Flows

The difference between cash inflows and outflows during a specific period, reflecting the company's financial health.

Internal Rate of Return

A financial metric used to evaluate the profitability of potential investments, calculating the discount rate at which the net present value of costs and benefits of an investment equals zero.

Capital Budgeting

The procedure of assessing and choosing long-term investment opportunities that align with the objective of maximizing shareholder wealth.

Net Present Value

A financial metric that calculates the value of a projected future cash flows relative to the initial investment, considering the time value of money.