Information and the international fisher effect

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Assume that the Australian dollar's spot rate is $.90 and that the Australian and U.S. 1-year interest rates are initially 6 percent. Then assume that the Australian 1-year interest rate increases by 5 percentage points, while the U.S. 1-year interest rate remains unchanged. Using this information and the international Fisher effect (IFE) theory, forecast the spot rate for 1 year ahead.

Reference no: EM131043387

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