Inflation affects creditors and debtors. Suppose the Canadian debtors borrowed $100 from the Canadian creditors on December 31, 1992 and promised to pay back $105 on December 31, 1993. This is equivalent to paying back a nominal interest rate of 5%.
1) Find the real interest rate, which is defined as real interest rate = nominal interest rate - inflation rate
2)Do the creditors gain or lose from this transaction? Explain