If the international Fisher effect (IFE) holds, the local investors are expected to earn the same return from investing internationally as they would from investing in their local markets.

Question

Quizplus · Accepted Answer

The international Fisher effect states that the difference in nominal interest rates between two countries is equal to the difference between the expected inflation rates of those countries. According to this theory, if the IFE holds, investors in different countries should earn equal returns after adjusting for the differences in the inflation rates. Therefore, local investors are expected to earn the same return from investing internationally as they would from investing in their local markets, assuming that the IFE holds.

If the International Fisher Effect (IFE) Holds, the Local Investors