t's suppose the current exchange for Forint (Hungary currency) vs. Kuna (Croatia currency) is:  55.75 Forint/Kuna. Suppose the interest rate on Hungary's government securities with one-year maturity is 3%, and that of Croatia is 2%. According to the International Fisher Effect model, Forint will _____ against the other currency

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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Let's suppose the current exchange for Forint (Hungary currency) vs. Kuna (Croatia currency) is:  55.75 Forint/Kuna.

Suppose the interest rate on Hungary's government securities with one-year maturity is 3%, and that of Croatia is 2%. According to the International Fisher Effect model, Forint will _____ against the other currency. 

Expert Solution
Step 1

Given Exchange rate = F/K = 55.75

Interest rate on Hungary security = 3 %

Interest rate on one year Croatia security = 2 %

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