Fisher Effect and International Fisher Effect. (12 points)

1. Check the interest rate (one-year government security, money market rate or lend rate) of US and foreign market in year 2018. (3 points)
2. Test Fisher Effect: verify whether the country with higher inflation has higher nominal interest rate? (3 points)
3. International Fisher Effect. Use information in 3.1 above and the information from Project Part I question 5.3 to test International Fisher Effect - verify both the direction and magnitude of the change in the foreign exchange rate by comparing with the interest rate differential. (6 points)

Note 1: Fisher Effect explains relationship between normal interest rate, real interest rate and expected inflation.

Note 2: The relationship between the percentage change in the spot exchange rate over time and the differential between comparable interest rates in different national capital markets is known as the international Fisher effect.

4. Forward Rate. (14 points)

1. Find current one-month forward rate (or future rate). (3 points)
2. Identify whether the forward rate is at a premium or discount to spot rate, and by how many basis points. (6 points)
3. Wait for one month, find the market rate next month, and compare with the forward rate you found above. Is the forward rate a good predictor of the forward rate? (5 points)