Question

The interest rate in the united kingdom is 7 percent, while the interest rate in the united states is 5 percent. the spot rate for the british pound is $1.50. according to the international fisher effect (ife), the british pound should adjust to a new level of

Answer 1

From the International Fisher Effect (IFE), we know that the formula to find the adjusted level for the British Pound should be: Spot rate x (1- U.S. interest rate)/(1 - U.K. interest rate). Plugging in the known values, we get: $1.50 / (1 - 0.05) / (1 - 0.07), which gives us: $1.47.