Negative inflation (deflation), nominal interest rates, and real rates. The Republic of Northern Lights, a small, stable country in the North Atlantic, is experiencing anegative inflation rate (deflation) at this time. The annual inflation rate is - 2%. If the nominal rate of interest is 6.5%, what are the real interest rates that the NorthernLightians are getting as a reward for waiting? Use the approximate nominal interest rate equation and the true nominal interest rate equation to determine the rates.Using the approximate nominal interest rate equation, what is the real interest rate that the Northern Lightians are getting as a reward for waiting?% (Round to two decimal places.)

Nominal interest rate = 6.5% Inflation rate = -2%

Answered: Negative inflation (deflation), nominal…

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter9: Forecasting Exchange Rates

Section: Chapter Questions

Problem 25QA

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