According to the international fisher effect (IFE), the exchange rate percentage change should be approximately equal to the differential in income levels between two countries.

Question

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According to the international fisher effect (IFE), the exchange rate percentage change should be approximately equal to the differential in interest rates between two countries, not income levels. The IFE is based on the idea that investors will move their funds to the currency with higher interest rates, which would cause the currency to appreciate and the interest rate differential to decrease.

According to the International Fisher Effect (IFE), the Exchange Rate