Question
1. In January 2022, Australia and the United States have the following interest rates and inflation rates Australian Cash rate target: 0.10% US Federal Funds
1. In January 2022, Australia and the United States have the following interest rates and inflation rates
- Australian Cash rate target: 0.10%
- US Federal Funds rate: = 0.25%
- Australian inflation rate: 3.5%
- US inflation rate: 7.5%
Explain the difference between nominal and interest rates in a country. What is the real interest rate in these 2 countries and how much is the (real) interest rate differential? .
2. If the International Fisher Effect as a theory of FX determination was correct, what would happen to the exchange rate between the US and Australian Dollar with the differential calculated above? Explain your reasoning.
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Fundamentals of Financial Management
Authors: Eugene F. Brigham, Joel F. Houston
11th edition
324422870, 324422873, 978-0324302691
