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(Solution Library) Assume that U.S. and British investors require a real return of 2%. If the nominal U.S. interest rate is 15%, and the nominal British rate

Question: Assume that U.S. and British investors require a real return of 2%.  If the nominal U.S. interest rate is 15%, and the nominal British rate is 13%, then according to the IFE, the British inflation rate is expected to be about _______ the U.S. inflation rate, and the British pound is expected to _______.

  1. 2 percentage points above; depreciate by about 2 percent
  2. 3 percentage points above; depreciate by about 3 percent
  3. 3 percentage points below; appreciate by about 3 percent
  4. 3 percentage points below; depreciate by about 3 percent
  5. 2 percentage points below; appreciate by about 2 percent

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