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The three-month dollar interest rate in New York is 4.20% per annum. Alternatively, the three-month euro interest rate in Frankfort is 6.40% p.a. The current
The three-month dollar interest rate in New York is 4.20% per annum. Alternatively, the three-month euro interest rate in Frankfort is 6.40% p.a. The current $/ spot exchange rate is $1.2120/. The euro three-month forward rate is quoted at $1.2180/.
Assume that the real rate of interest in both the euro zone and the U.S. is 1.20% per annum; use the Fisher Effect (FE) to calculate the expected annualized three-month rates of inflation in the euro zone and the U.S. (Expressed as a % p.a. up to four decimal places).
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