The international Fisher effect (IFE) suggests that the foreign currency will appreciate when:

Question

​The international Fisher effect (IFE) suggests that the foreign currency will appreciate when:

Quizplus · Accepted Answer

The IFE states that the expected change in the exchange rate between two currencies is equal to the difference in their nominal interest rates. Specifically, if the nominal interest rate in the home country is higher than the nominal interest rate in the foreign country, then the home currency is expected to appreciate relative to the foreign currency. Therefore, option A is correct. Option B refers to the real interest rates, which are the nominal interest rates adjusted for inflation, and is not directly related to the IFE. Option C is incorrect because it compares a nominal interest rate with an inflation rate, which are not directly comparable. Option D is also incorrect because if the foreign inflation rate exceeds the home inflation rate, then the foreign currency is expected to depreciate relative to the home currency.

​The International Fisher Effect (IFE) Suggests That the Foreign Currency

The International Fisher Effect (IFE) Suggests That the Foreign Currency