Question 14 1 pts Which of the following statement is FALSE? Other country characteristics besides inflation le.g., income levels, government controls) can affect exchange rate movements. Even if the expected inflation derived from the Fisher effect properly reflects the actual inflation rate over the period, relying solely on inflation to forecast the future exchange rate is subject to errors. The international Fisher effect (IFE) theory suggests that currencies with high interest rates will have high expected inflation (due to the Fisher effect) and the relatively high inflation will cause the currencies to depreciate (due to the relative PPP effect). The international Fisher effect (IFE) theory suggests that foreign investors who attempt to capitalize on relatively high U.S. interest rates will be adversely affected by USD appreciation. The Fisher effect suggests that nominal interest rates of two countries differ because of the difference in expected inflation between the two countries. Question 16 1 pts Which of the following statements is CORRECT? Currency risk in carry trades is typically hedged. The Big-Mac index was invented by The Economist in 1986 as a lighthearted guide to whether currencies are at their "correct level. It is based on the relative purchasing-power parity. An appreciation of high-yielding currencies is the main risk in carry trade. Carry trade has paid off on average because historically interest rate differences haven't reflected actual subsequent exchange rate movements. According to relative purchasing power parity, exchange rates equal the level of relative average prices across countries