If the Nominal Interest Rate Was 12 Percent and the Inflation

question 173

Multiple Choice

If the nominal interest rate was 12 percent and the inflation rate was 10 percent in 1980, while the nominal interest rate was 7 percent and the inflation rate was 2 percent in 2001, then

• A)real rates were higher in 2001.
• B)real rates were higher in 1980.
• C)credit was more expensive in 1980.
• D)credit was cheaper in 2001 because the nominal rate was lower.

Understand the concepts of experiments and sample spaces.

Differentiate between mutually exclusive and independent events.

Use the relative frequency approach to probability.

Calculate probabilities involving combinations and permutations.

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Definitions:

Spot Trade

A transaction that involves the immediate exchange of financial instruments or commodities.

Rupees

The official currency of India, symbolized as INR and used also in other South Asian countries.

International Fisher Effect

A theory proposing that the difference in nominal interest rates between two countries is equal to the expected change in their exchange rates.

Foreign Currency Approach

A method in financial analysis or accounting that deals with the effects of exchange rates on foreign currency transactions and translations.