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Q. You read in a newspaper to the nominal interest rate is 12 percent (%) per year in Canada also 8 percent (%) per year in the United States. Assume to the real interest rates are equalized in the two countries also to purchasing-power parity holds.

a) Using the Fisher equation Illustrate what can you infer about expected inflation in Canada also in the United States?

b) Illustrate what can you infer about expected change in the exchange rate among the Canadian dollar also the U.S. dollar?

c) A friend proposes a get-rich-quick scheme: borrow from a US bank at 8%, deposit the money in a Canadian bank at 12% also make a 4% profit. Illustrate what is wrong with this scheme?

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M9169892

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