​Assume That the International Fisher Effect (IFE) Holds Between the United

Multiple Choice

​Assume that the international Fisher effect (IFE) holds between the United States and the United Kingdom. The U.S. inflation is expected to be 5 percent, while British inflation is expected to be 3 percent. The interest rate offered on pounds is 7 percent, and the U.S. interest rate is 7 percent. What does this say about real interest rates expected by British investors?

A) ​Real interest rates expected by British investors are equal to the interest rates expected by U.S. investors.
B) ​Real interest rates expected by British investors are 2 percentage points lower than the real interest rates expected by U.S. investors.
C) ​Real interest rates expected by British investors are 2 percentage points above the real interest rates expected by U.S. investors.
D) ​IFE doesn't hold in this case because the U.S. inflation is higher than the British inflation, but the interest rates offered in both countries are equal.