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.
a.True
b.False

Question

Quizplus · Accepted Answer

The international Fisher effect is based on the relationship between interest rates and exchange rates. If interest rate parity holds and the forward rate is an unbiased predictor of the future spot rate, then the difference in interest rates between two countries should be equal to the expected change in the exchange rate over the same period. This implies that the international Fisher effect also holds, which states that real interest rates should be equal across countries. Therefore, if interest rate parity holds and the forward rate is an unbiased predictor of the future spot rate, then the international Fisher effect should also hold.

Generally, If Interest Rate Parity Holds and the Forward Rate