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Inessa05 [86]
3 years ago
15

You observe that the inflation rate in the United States is 1.5 percent per year and that T-bills currently yield 2.0 percent an

nually. Use the approximate international Fisher effect to answer the following questions.a. What do you estimate the inflation rate to be in Australia, if short-term Australian government securities yield 8 percent per year? (Enter your answer as a percent rounded to 1 decimal place, e.g., 32.1.)Inflation rate _____%b. What do you estimate the inflation rate to be in Canada, if short-term Canadian government securities yield 9 percent per year? (Enter your answer as a percent rounded to 1 decimal place, e.g., 32.1.)Inflation rate _____ %c. What do you estimate the inflation rate to be in Taiwan, if short-term Taiwanese government securities yield 10 percent per year? (Enter your answer as a percent rounded to 1 decimal place, e.g., 32.1.)Inflation rate _____ %
Business
1 answer:
Kamila [148]3 years ago
6 0

Answer:

(a) 7.5%

(b) 8.5%

(c) 9.5%

Explanation:

(a) Foreign country inflation rate - US inflation rate = Foreign country risk free rate - US risk free rate

Lets foreign country inflation rate = X

X - 1.5 = 8 - 2

X - 1.5 = 6

X = 6 + 1.5

   = 7.5%

(b)

Lets foreign country infllation rate = X

X - 1.5 = 9 - 2

X - 1.5 = 7

X = 7 + 1.5

   = 8.5%

(c)

Lets foreign country inflation rate = X

X - 1.5 = 10 - 2

X - 1.5 = 8

X = 7 + 1.5

   = 9.5%

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