Hello I need assistance answering these 2 multiple choice qu

Hello,

I need assistance answering these 2 multiple choice questions.

Real interest rates in the UK are 6%, while real interest rates in the US are 5% The spot rate for the Britis British pound should adjust to a new level of pou (? s S. According to en e nationa fi er i FE he O a. $1.44. O b. $1.49 ° C. $1.51. O d. The international Fisher effect suggests none of these choices are correct.

Solution

1. Computation of British pound using International Fisher Effect

Formula = British Pound * (1 + UK interest rate) = US Dollar * (1 + US interest rate)

1 * (1 + 0.06) = $1.50 * (1 + 0.05)

British Pound = $1.49 Option B

2. Computation of Japanese Yen

Formula = Yen * (1 + Japan interest rate) = US Dollar * (1 + US interest rate)

1 * (1 + 0.015) = $0.008 * (1 + 0.04)

Yen = $0.0082 Option B