The mathematical representation (1 + real interest rate)x (1 + inflation rate)= 1 + nominal interest rate
Is of what theory of exchange rate determination?
A) Fisher effect
B) Interest Rate Parity
C) multiple regression
D) Purchasing Power Parity
E) None of the above

Question

Quizplus · Accepted Answer

Interest Rate Parity and Purchasing Power Parity are alternate theories of exchange rate determination.Multiple regression is a statistical technique,not a theory of exchange rate determination.The Fisher effect determines that a country's nominal interest rate comprises both the inflation rate in that country and the real interest rate that borrowers are paying.

The Mathematical Representation (1 + Real Interest Rate)x (1