e. today's forward rate of the British pound will equal today's spot rate. 21. According to the international Fisher effect, if U.S. investors expect a 5% rate of domestic inflation over one year, and a 2% rate of inflation in European countries that use the euro, and require a 3% real return on investments over one year, the nominal interest rate on one-year US. Treasury securities would be a. 296. b. 396. C. 296. d. 596. e. 896. 22. Assume that US, and British investors require a real return of 2%. If the nominal US, interest rate is 1596, and the nominal British rate is 13%, then according to the IFE, the British inflation rate is expected to be about the U.S. inflation rate, and the British pound is expected to a. 2 percentage points above: depreciate by about 2% b. 3 percentage points above, depreciate by about 3% c. 3 percentage points below, appreciate by about 3% d, 3 percentage points below; depreciate by about 3% e, 2 percentage points below; appreciate by about 2% 23. Assume that the inflation rate in Singapore is 3%, while the inflation rate in the US is 8% According to PPP, the Singapore dollar should- a. appreciate; 4.85 b. depreciate; 3.11 c. appreciate; 3.11 d. depreciate; 4.85 by %. 24.The inflation rate in the US, is 3%, while the inflation rate in Japan is 10%. The current exchange rate for the Japanese yen () is $0.0075. After supply and demand for the Japanese yen has adjusted in the manner suggested by purchasing power parity, the new exchange rate for the yen will be: a. $0.0076. b. $0.0073. c. $0.0070. d. $0.0066 25. Which of the following is not true regarding IRP, PPP, and the IFE? a. IRP suggests that a currency's spot rate will change according to interest rate b. PPP suggests that a currency's spot rate will change according to inflation c. The IFE suggests that a currency's spot rate will change according to interest rate d. All of the above are true. differentials differentials. differentials