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

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Porter Martin

Business

26 September, 16:30

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

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Rhys Salas · 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.