Assume That U

question 11

Multiple Choice

Assume that U.S. and British investors require a real return of 2 percent. If the nominal U.S. interest rate is 15 percent, and the nominal British rate is 13 percent, then according to the IFE, the British inflation rate is expected to be about ____ the U.S. inflation rate, and the British pound is expected
To ____.

• A)2 percentage points above; depreciate by about 2 percent
• B)3 percentage points above; depreciate by about 3 percent
• C)3 percentage points below; appreciate by about 3 percent
• D)3 percentage points below; depreciate by about 3 percent
• E)2 percentage points below; appreciate by about 2 percent

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Definitions:

Convertible

Refers to financial instruments or securities, like bonds or preferred stock, that can be transformed into another form, usually common stock, under certain conditions.