International Fisher Effect
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The annual interest rate on one-year, U.S. government bonds is 5 percent. The annual interest rate on one-year Swedish government bonds is 7 percent. The current spot rate of exchange between the dollar and the Swedish krona is $0.1286. If the International Fisher Effect (IFE) holds, what is the expected spot rate of exchange in one year between dollars and krona?
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Solution Summary
The solution uses the International Fisher Effect (IFE) to find the expected spot rate of exchange in one year between dollars and Swedish krona.
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Expected Spot rate / Current Spot rate = (1+ US interest rate)/ (1+ Swedish ...
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