The International Fischer Effect Says That Interest Rate Differentials

question 32

Multiple Choice

The International Fischer effect says that interest rate differentials

• A)predict exchange rate movement.
• B)can be used to determine purchasing power parity.
• C)are an example of the law of one price.
• D)illustrate Pareto optimality.

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Definitions:

Buy Down

A financing technique where points are paid upfront by a borrower to reduce the interest rate on a loan.

Point Purchased

In finance, particularly in mortgage contexts, this refers to prepaid interest that the borrower opts to pay upfront in order to lower the interest rate on the loan.

Monthly Mortgage

A regularly scheduled payment that often includes both interest and principal, made by a borrower to a lender for the repayment of a home loan.

Interest Rate

The percentage rate that is paid by a bank on money that is in some accounts.