Q819
Given below are two statements, one labelled as Assertion (A) and the other labelled as Reason (R). Read the statements and choose the correct answer: Assertion (A) The nominal interest rate comprises of a real interest rate and an expected rate of inflation and it adjusts when the inflation rate is expected to change. Hence, in the perfect international capital markets, real rate of returns are equal in the two countries. Reason (R) The international fisher effects states that the nominal interest rate differential must be equal to the expected inflation rate differential In the two countries.
A.
Both (A) and (R) are correct and (R) is the right explanation of (A)
AnswerB.
Both (A) and (R) are correct, but (R) is not the right explanation of (A)
C.
(A) is correct, but (R) is not correct
D.
Both (A) and (R) are incorrect
Answer: Option A
Solution
Answer: Option A
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