If the international Fisher effect (IFE) exists, then a U.S. firm that has access to banks offering high interest rates in deposits denominated in foreign currencies should:

Question

If the international Fisher effect (IFE) exists, then a U.S. firm that has access to banks offering high interest rates in deposits denominated in foreign currencies should:​

Quizplus · Accepted Answer

The International Fisher Effect (IFE) theory suggests that the difference in nominal interest rates between two countries is equal to the expected change in exchange rates between their currencies. Therefore, if a U.S. firm invests in foreign deposits with higher interest rates, any potential higher yield would be offset by the depreciation of the foreign currency against the U.S. dollar, leading to similar effective yields between U.S. and foreign deposits.

If the International Fisher Effect (IFE) Exists, Then a U