Suppose a Lender Expects a Real Interest Rate of 6

question 263

Multiple Choice

Suppose a lender expects a real interest rate of 6% and the inflation rate is expected to be 3%. In this case, the nominal interest rate equals:

• A)3%.
• B)9%.
• C)12%.
• D)6%.

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Definitions:

Canadian Dollars

The official currency of Canada, represented by the ISO code CAD.

Short-Run Exposure

Financial risk faced by companies in the immediate future due to exchange rate movements, affecting the value of foreign currency denominated transactions.

Exchange Rate Risk

The possibility that investors may face financial losses as a result of changes in foreign exchange rates.

Fluctuations

Variations or changes in level, degree, or value over time, often seen in financial markets and economic indicators.