If interest rate parity holds, then the international Fisher effect must hold.

Question

Quizplus · Accepted Answer

Interest rate parity and the international Fisher effect are related but distinct concepts. Interest rate parity focuses on the relationship between spot and forward exchange rates to prevent arbitrage, while the international Fisher effect deals with the relationship between interest rates and exchange rate movements, predicting that currencies with higher interest rates will depreciate. One can exist without the strict application of the other.

If Interest Rate Parity Holds, Then the International Fisher Effect