Prices differences of identical items in different currencies can best be explained by the international Fisher effect.

Question

Quizplus · Accepted Answer

The international Fisher effect primarily explains the relationship between interest rates and exchange rates, suggesting that differences in nominal interest rates between two countries will result in proportional changes in the exchange rate between their currencies. Price differences of identical items in different currencies are more directly explained by purchasing power parity (PPP) rather than the international Fisher effect.

Prices Differences of Identical Items in Different Currencies Can Best