# Question: From our discussion of the Fisher effect in Chapter 5

From our discussion of the Fisher effect in Chapter 5 , we know that the actual relationship between a nominal rate, R , a real rate, r , and an inflation rate, h , can be written as:

1 + r = (1 + R) / (1 + h)

This is the domestic Fisher effect.

a. What is the nonapproximate form of the international Fisher effect?

b. Based on your answer in (a), what is the exact form for UIP? Recall the exact form of IRP and use UFR.

c. What is the exact form for relative PPP?

d. Recalculate the NPV for the Kihlstrom drill bit project (discussed in Section 20.5 ) using the exact forms for the UIP and the international Fisher effect. Verify that you get precisely the same answer either way.

1 + r = (1 + R) / (1 + h)

This is the domestic Fisher effect.

a. What is the nonapproximate form of the international Fisher effect?

b. Based on your answer in (a), what is the exact form for UIP? Recall the exact form of IRP and use UFR.

c. What is the exact form for relative PPP?

d. Recalculate the NPV for the Kihlstrom drill bit project (discussed in Section 20.5 ) using the exact forms for the UIP and the international Fisher effect. Verify that you get precisely the same answer either way.

## Answer to relevant Questions

Can our goal of maximizing the value of the stock conflict with other goals, such as avoiding unethical or illegal behavior? In particular, do you think subjects like customer and employee safety, the environment, and the ...During the year, the Senbet Discount Tire Company had gross sales of $870,000. The firm’s cost of goods sold and selling expenses were $280,000 and $155,000, respectively. Senbet also had notes payable of $650,000. These ...Cusic Industries had the following operating results for 2010; sales _ $25,700; cost of goods sold _ $18,400; depreciation expense _ $3,450; interest expense _ $790; dividends paid _ $1,100. At the beginning of the year, net ...Martin Driving School's 2009 balance sheet showed net fixed assets of $4.7 million, and the 2010 balance sheet showed net fixed assets of $5.3 million. The company's 2010 income statement showed a depreciation expense of ...Use the information in Figure 20.1 to answer the following questions: a. Which would you rather have, $100 or £100? Why? b. Which would you rather have, 100 Swiss francs (SF) or £100? Why? c. What is the cross-rate for ...Post your question