Generally, if interest rate parity holds and the forward rate is an unbiased predictor of the future spot rate, then the international Fisher effect will also hold.

Question

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If interest rate parity holds, it implies that the difference in interest rates between two countries is equal to the difference between the forward exchange rate and the spot exchange rate. When combined with the assumption that the forward rate is an unbiased predictor of the future spot rate, it leads to the conclusion that the expected change in the spot rate is determined solely by the difference in interest rates between the two countries. This is the essence of the international Fisher effect, which posits that the higher the interest rate in a country, the greater the expected depreciation of its currency over time. Therefore, if interest rate parity and unbiased forward rate prediction hold, the international Fisher effect must also hold.

Generally, If Interest Rate Parity Holds and the Forward Rate