Question

Which one of the following supports the idea that real interest rates are equal across countries?...

Which one of the following supports the idea that real interest rates are equal across countries?

Multiple Choice

  • Unbiased forward rates condition

  • International Fisher effect

  • Interest rate parity

  • Purchasing power parity

  • Uncovered interest rate parity

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Answer #1

Option B is correct. International Fisher effect.

International Fisher effects assums that the country with higher Interest will experience higher inflation also, which will result in decrease in Real Interest Rate and make the Real Interest Rate of interest same across countries.

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