If the International Fisher Effect (IFE) Exists, Then a U

question 19

Multiple Choice

If the international Fisher effect (IFE) exists, then a U.S. firm that has access to banks offering high interest rates in deposits denominated in foreign currencies should:​

• A) ​invest in the foreign deposits since they will, on average, generate higher effective yields than a U.S. deposit.
• B) ​invest in the U.S. deposits since they will, on average, generate higher effective yields than a foreign deposit.
• C) ​invest in the U.S. deposits since they will, on average, generate similar effective yields as a foreign deposit.
• D) ​invest in the foreign deposits since they will, on average, generate similar effective yields as a U.S. deposit.

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Definitions:

Gear Ratios

The ratio of the teeth numbers between two meshing gears or the ratio of the rotation speed of two gears connected in a gearbox, affecting torque and speed.

Transfer Case

An auxiliary transmission used to split drive torque from the main transmission between rear and forward drive axles. Also known as a dropbox.

Differential Carrier

The housing that encloses the differential assembly in a vehicle, supporting the gears that allow the wheels to rotate at different speeds.

Backlash

The play or slop between mating mechanical parts, such as gears, which is the result of gaps between parts.