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9) The Fisher effect states that the rate is made up of a real required rate of return and an inflation premium. a) nominal exchange

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9) The Fisher effect states that the rate is made up of a real required rate of return and an inflation premium. a) nominal exchange b) real exchange c) nominal interest rate d) adjusted dividend 10) Assume a nominal interest rate on one-year U.S. Treasury Bills of 3.80% and a real rate of interest of 2.00%. Using the Fisher Effect Equation, what is the exact expected rate of inflation in the U.S. over the next year? a) 1.84% b) 1.80% c) 1.76% d) 1.72% 11) One-year interest rates are currently 2.50% in the United States and 3.70% in Great Britain. The current spot rate between the pound and dollar is $1.9000/E. What is the expected spot rate in one year if the international Fisher effect holds? a) $1.9000/E b) $1.9222/ c) $1.8780/E d) $1.8500/ 12) Assume that the following are the predicted inflation rates in these countries for the year: 2% for the United States, 3% for Canada, 4% for Mexico, and 5% for Brazil. According to the purchasing power parity and everything else held constant, which of the following would we expect to happen? a) The Brazilian real will depreciate against the U.S. dollar. b) The Mexican peso will depreciate against the Brazilian real. c) The Canadian dollar will depreciate against the Mexican peso. d) The U.S. dollar will depreciate against the Canadian dollar. 13) A decrease in the foreign interest rate causes the demand for domestic assets to and the domestic currency to everything else held constant. a) increase; appreciate b) increase; depreciate c) decrease; appreciate d) decrease; depreciate 14) Suppose that the European Central Bank enacts expansionary policy (i.e. Money supply increase). Everything else held constant, this will cause the demand for U.S. assets to and the U.S. dollar to . a) increase; appreciate b) decrease; appreciate c) increase; depreciate d) decrease; depreciate

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