According to the International Fisher Effect, If Euro Investors Expect

question 1

Multiple Choice

According to the international Fisher effect, if euro investors expect a 5% rate of domestic inflation over one year, and a 2% rate of inflation in the US, and require a 3% real return on investments over one year, the nominal interest rate on one-year euro Treasury securities would be:

• A) 2%.
• B) 3%.
• C) -2%.
• D) 5%.
• E) 8%.

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Definitions:

Cohort Effect

Similarities in behavior among a group of peers that stem from the fact that group members were born at the same time in history.

Longitudinal

A study or research design that follows the same subjects over a period of time to observe changes or development.

Cross-Sectional

A type of observational study that analyzes data from a population at a specific point in time.

Tabula Rasa

The theory that the human mind is at birth a "blank slate" without rules for processing data, and that data is added and rules for processing are formed solely by one's sensory experiences.