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International Finance

3. In early 1996, the short-term interest rate in France was 3.7%, and forecast French inflation was 1.8%. At the same time, the short-term German interest rate was 2.6% and forecast German inflation was 1.6%.

a. Based on these figures, what were the real interest rates in France and Germany?

b. To what would you attribute any discrepancy in real rates between France and Germany?

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a. Based on these figures, what were the real interest rates in France and Germany?

ANSWER. The French real interest rate was 1.037/1.018 - 1 = ...

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$2.19