The International Fischer effect says that interest rate differentials

Question

Quizplus · Accepted Answer

The International Fischer effect suggests that differences in nominal interest rates between countries will be reflected in the exchange rate movement, i.e. a country with a higher interest rate is expected to experience an appreciation of its currency relative to other countries. Therefore, option A is the correct answer. Option B is related to another concept, purchasing power parity, which is not directly related to the International Fischer effect. Option C is related to the law of one price, which suggests that identical goods should have the same price in different markets when expressed in a common currency. Option D is related to Pareto optimality, which is a concept from welfare economics and describes a state where no individual can be made better off without making another individual worse off. This concept is not directly related to the International Fischer effect.

The International Fischer Effect Says That Interest Rate Differentials