International Economics 14th Edition by Robert Carbaugh

Exercise 10

Suppose that the nominal interest rate on three-month Treasury bills is 8 percent in the United States and 6 percent in the United Kingdom, and the rate of inflation is 10 percent in the United States and 4 percent in the United Kingdom.
a. What is the real interest rate in each nation?
b. In which direction would international investment flow in response to these real interest rates? c. What impact would these investment flows have on the dollar's exchange value?