________ states that the spot exchange rate should change in an equal amount but in the opposite direction to the difference in interest rates between two countries.

Question

Quizplus · Accepted Answer

The statement given in the question refers to the Fisher-open hypothesis, which states that the spot exchange rate should adjust to reflect the differential in interest rates between two countries. Specifically, if one country has a higher interest rate than another, its currency should depreciate in the spot market to compensate for the higher return available to investors in the other country. This effect is called interest rate parity, which is a fundamental concept in international finance. The Fisher Effect is related to the Fisher-open hypothesis but refers to the relationship between nominal interest rates, expected inflation, and real interest rates. None of the above options are sufficient to answer the question accurately, but the best choice is A.

________ States That the Spot Exchange Rate Should Change in an Equal