Question about International Fisher Effect (IFE)
24. Beth Miller does not believe that the international Fisher effect (IFE) holds. Current one-
year interest rates in Europe are 5 percent, while one-year interest rates in the U.S. are
3 percent. Beth converts $100,000 to euros and invests them in Germany. One year
later, she converts the euros back to dollars. The current spot rate of the euro is $1.10.
a. According to the IFE, what should the spot rate of the euro in one year be?
b. If the spot rate of the euro in one year is $1.00, what is Beth's percentage return from her
c. If the spot rate of the euro in one year is $1.08, what is Beth's percentage return from her
d. What must the spot rate of the euro be in one year for Beth's strategy to be successful?
This posting provides a detailed solution to the given problem based on the International Fisher Effect.
This answer includes:
- Plain text
- Cited sources when necessary
- Attached file(s)
- International Fisher Effect (IFE).doc