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    Interest rates and international investment flows

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    Suppose that the nominal interest rate on three-month Treasury bills is 8% in the United States and 6% in the United Kingdom, and the rate of inflation is 10% in the United States and 4% in the United Kingdom.

    a) What is the real interest rate in each nation?

    b) In which direction would international investment flow in response to these real interest rates?

    c) What impact would these investment flows have on the dollar exchange value?

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    https://brainmass.com/economics/international-investment/interest-rates-international-investment-flows-example-299931

    Solution Preview

    Given information:
    Nominal interest rate on three-month Treasury bills is 8% in the United States and 6% in the United Kingdom, and the rate of inflation is 10% in the United States and 4% in the United Kingdom.

    (a) Real interest rate is defined to be Nominal ...

    Solution Summary

    Interest rates and international investment flows are examined.

    $2.19