Assume that the real interest rate is 2% in the U.S. and 1% in Canada. The annual nominal interest rate is 3% in the U.S. and 6% in Canada. The spot exchange rate is $0.72 per Canadian dollar.

 

What is the approximate expected spot exchange rate in one year (in U.S. dollars per Canadian dollar) according to the Fisher effect and purchasing power parity?

Answer rating: 100% (QA)

The Fisher effect states that the real interest rate equals the nominal interes... View the full answer