The international Fisher effect theory states that differences in interest rates between two countries will be offset by equal but opposite changes in

Question

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The international Fisher effect theory suggests that the difference in interest rates between two countries will be offset by equal but opposite changes in the future spot rate. In other words, if one country has a higher interest rate than another, its currency should be expected to depreciate, due to reduced demand, and the other country's currency is expected to appreciate, due to increased demand. This will continue until there is an equal rate of return for investors in both countries, negating any potential arbitrage opportunities. Therefore, the correct choice is A.

The International Fisher Effect Theory States That Differences in Interest