Assume US and Swiss Investors Require a Real Rate of Return

question 58

Multiple Choice

Assume U.S. and Swiss investors require a real rate of return of 3%. Assume the nominal U.S. interest rate is 6% and the nominal Swiss rate is 4%. According to the international Fisher effect, the franc will ____ by about ____.

• A) appreciate; 3%
• B) appreciate; 1%
• C) depreciate; 3%
• D) depreciate; 2%
• E) appreciate; 2%

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Definitions:

Liabilities

Financial obligations or debts that a business owes to others, which must be settled over time through the transfer of economic benefits.

Capitals

Financial assets or the financial value of assets, such as cash and securities, owned by a business.

Revenues

The income generated from normal business operations and includes discounts and deductions for returned merchandise.

Supplies

Materials or items which are used in the operation of a business or needed in the production process.