• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
Free ACCA & CIMA online courses from OpenTuition

Free ACCA & CIMA online courses from OpenTuition

Free Notes, Lectures, Tests and Forums for ACCA and CIMA exams

  • ACCA
  • CIMA
  • FIA
  • OBU
  • Books
  • Forums
  • Ask AI
  • Search
  • Register
  • Login
  • ACCA Forums
  • Ask ACCA Tutor
  • CIMA Forums
  • Ask CIMA Tutor
  • FIA
  • OBU
  • Buy/Sell Books
  • All Forums
  • Latest Topics

20% off ACCA & CIMA Books

OpenTuition recommends the new interactive BPP books for September 2025 exams.
Get your discount code >>

Fisher affect

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Fisher affect

  • This topic has 1 reply, 2 voices, and was last updated 4 years ago by John Moffat.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • July 7, 2020 at 4:36 pm #576256
    thaole2102
    Member
    • Topics: 3
    • Replies: 3
    • ☆

    Dear John,

    Country X’s expected inflation rate is 5% per year, compared to 2% per year in country Y.
    Country Y’s nominal interest rate is 4% per year and the current spot exchange rate between the two countries is 1.5 dinar per $1.

    In answer sheet working,

    (1.04*1.05/1.02)-1=7.06%.

    In other topic, you explained that:

    As inflation is higher or lower, then so too the actual (nominal) interest rate will be higher or lower.
    So if the nominal interest rate in country X = X,
    then: (1 + X) / 1.05 = 1.04/1.02
    Therefore 1+X = 1.05 x 1.04/1.02 = 1.0706
    X = 0.0706 = 7.06%

    But sorry I still don’t really get it. Based on your explaination, I understand that the interest rate and inflation rate is directly proportion. But I still don’t understand based on which data of the question, this proportion of country X = country Y?

    The exchange rate is 1.5 dinar per usd so how come the below rate is same:
    X nominal interest rate/ X inflation rate = Y nominal interest rate/ Y inflation rate?

    July 7, 2020 at 5:37 pm #576271
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    You have not said which question you are referring to or what the question actually asked for (and which country operates in which currency).

    In theory, the real interest rate in each country will be the same, and as you have written quite correctly that the real interest rate in country Y is 1.04 / 1.02 – 1 = 0.01961 (slightly less than 2%).

    This is therefore (in theory) the real interest rate in country X as well, and therefore the actual/nominal interest rate in country X will be (1.05 x 1.01961) – 1, which is 0.706 or 7.06%.

  • Author
    Posts
Viewing 2 posts - 1 through 2 (of 2 total)
  • You must be logged in to reply to this topic.
Log In

Primary Sidebar

Donate
If you have benefited from our materials, please donate

ACCA News:

ACCA My Exam Performance for non-variant

Applied Skills exams is available NOW

ACCA Options:  “Read the Mind of the Marker” articles

Subscribe to ACCA’s Student Accountant Direct

ACCA CBE 2025 Exams

How was your exam, and what was the exam result?

BT CBE exam was.. | MA CBE exam was..
FA CBE exam was.. | LW CBE exam was..

Donate

If you have benefited from OpenTuition please donate.

PQ Magazine

Latest Comments

  • julio99 on Impairments – Impairment (CGU) – ACCA Financial Reporting (FR)
  • effy.sithole@gmail.com on EPS – diluted EPS Example – ACCA Financial Reporting (FR)
  • Ken Garrett on The Finance Function in the Digital Age – CIMA E1
  • DeborahProspect on ACCA SBR Specimen Exam 2 Question 1
  • darshan.69 on Chapter 9 Pension Schemes TX-UK FA2023

Copyright © 2025 · Support · Contact · Advertising · OpenLicense · About · Sitemap · Comments · Log in