The International Fisher Effect states that for any two countries, the spot exchange rate should change in an equal amount but in the opposite direction to the difference in nominal interest rates for the two countries.

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The International Fisher Effect is a widely accepted theory in finance that predicts the relationship between exchange rates and nominal interest rates. According to this theory, if two countries have different nominal interest rates, the country with the higher interest rate will experience a depreciation in its currency value, while the country with the lower interest rate will experience an appreciation of its currency value. This is due to the fact that higher interest rates attract foreign investors who seek to earn higher returns, and this increased demand for the currency causes its value to rise. Conversely, lower interest rates reduce the appeal of a country's currency to foreign investors, which leads to a decline in its currency value. Overall, the International Fisher Effect suggests that exchange rates should adjust in order to equalize the real return on investment across different countries.

The International Fisher Effect States That for Any Two Countries