Which theory states that the difference in interest rates between two countries is an unbiased predictor of the future change in the spot exchange rate?

Question

Quizplus · Accepted Answer

The International Fisher effect states that the difference in nominal interest rates between two countries is a predictor of the future change in the spot exchange rate, assuming that real interest rates are the same across countries. This theory suggests that a country with a higher interest rate will see its currency depreciate in the future, relative to a country with a lower interest rate.

Which Theory States That the Difference in Interest Rates Between