The international Fisher effect (IFE) suggests that the foreign currency will appreciate when: Group of answer choices a) the current home inflation rate exceeds the current foreign nominal interest rate. b) the current home real interest rate exceeds the current foreign real interest rate. c) the current foreign inflation rate exceeds the current home inflation rate. d) the current home nominal interest rate exceeds the current foreign nominal interest rate.

Question

Social Studies

Mila Buck

16 August, 14:30

The international Fisher effect (IFE) suggests that the foreign currency will appreciate when: Group of answer choices a) the current home inflation rate exceeds the current foreign nominal interest rate. b) the current home real interest rate exceeds the current foreign real interest rate. c) the current foreign inflation rate exceeds the current home inflation rate. d) the current home nominal interest rate exceeds the current foreign nominal interest rate.

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Answers (1)

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Kinsley · Answer 1

d). the current home nominal interest rate exceeds the current foreign nominal interest rate.

Explanation:

International Fisher Effect

It is a hypothesis in economy and finance which states that the great difference between the two countries currencies exchange rate is almost equal to the difference in the nominal rates of the two countries.

Currency appreciation means the value of one currency increases when compared to other country's currency.

Thus according to this theory, the value of the foreign currency increases when the current nominal interest rate of the home country is more than the current nominal interest rate of the foreign country.

Hence the answer is - --

d). the current home nominal interest rate exceeds the current foreign nominal interest rate.