​Assume That the One-Year Interest Rate in the United States

question 34

Multiple Choice

​Assume that the one-year interest rate in the United States is 7 percent and in the United Kingdom is 5 percent. According to the international Fisher effect, the British pound's spot exchange rate should ____ by about ____ over the year.

• A) ​depreciate; 1.9 percent
• B) ​appreciate; 1.9 percent
• C) ​depreciate; 3.94 percent
• D) ​appreciate; 3.94 percent

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Definitions:

Joint Ventures

Business arrangements where two or more parties agree to pool their resources for the purpose of accomplishing a specific task, project, or business activity.

Economic Dissimilarities

The differences in economic conditions, structures, and performance between regions, countries, or groups.

Liability of Foreignness

The inherent disadvantages that foreign firms experience in host countries due to their non-native status, which can include cultural, legal, and economic barriers.

Nonequity Modes

Forms of international business that do not involve direct ownership of assets in another country, such as franchising or licensing.