The principle that a difference in nominal interest rates supported by two countries' currencies will cause an equal but opposite change in their spot exchange rates is known as the international Fisher effect.

Question

Quizplus · Accepted Answer

This statement is true. The international Fisher effect suggests that the difference in nominal interest rates between two countries will be offset by changes in their exchange rates. Specifically, the currency with the higher interest rate should weaken in value relative to the currency with the lower interest rate, resulting in an equalization of expected returns for investors.

The Principle That a Difference in Nominal Interest Rates Supported