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 using the code given below. Assertion (A): The nominal interest rate comprises a real interest rate and an expected rate of inflation, and it adjusts when the inflation rate is expected to change. Hence, in perfect international capital markets, real rates of return are equal in the two countries. Reason (R): The International Fisher Effect states that the nominal interest rate differential must be equal to the expected inflation rate differential in the two countries.

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General Studies · International Finance

Verified Solution4 OptionsUpdated: October 2026👁️1 View

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Both (A) and (R) are correct and (R) is the right explanation of (A).

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Answer 1

Both (A) and (R) are incorrect.

Answer 2

(A) is correct but (R) is not correct.

Answer 3

Both (A) and (R) are correct but (R) is not the right explanation of (A).

Answer 4

Both (A) and (R) are correct and (R) is the right explanation of (A).

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