The international fisher effect

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Reference no: EM131910376

The spot rate of the New Zealand dollar is $0.68. The spot rate of the Argentine Peso is 0.084 New Zealand dollars. You expect that the one-year inflation rate is 8 percent in the New Zealand, 10 percent in Argentine, and 3 percent in the U.S. The one-year interest rate is 9% in New Zealand, 8% in Argentine, and 2% in the U.S. Assume that locational arbitrage and triangular arbitrage ensures that spot exchange rates are properly aligned. Also assume that you believe in the International Fisher Effect. What is your expected spot rate of the Argentine Peso in one year with respect to the U.S. dollar?

Reference no: EM131910376

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