Sally Franklin, CPA, is a financial advisor to Jamie Curtess, a U.S. citizen interested in learning more about how her investments will be affected by exchange rates and differences in interest rates internationally. Franklin has gathered the following information based on Curtess’s investment interests. i) ii) Switzerland South Africa Nominal 1-year interest rate: 5% 7% Expected annual inflation: 3% 5% According to the international Fisher relation, what is the 1-year nominal interest rate in the United States? If the relative form of the PPP holds, what is the expected exchange rate in one year? The current spot exchange rate: $1 = €0.74. Europe Nominal 1-year interest rate: 4% Expected annual inflation: 2% Franklin also gathers the following information: United States ? 1% b) Briefly describe how a repo transaction works
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