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The International Fisher Effect

The relationship between the percentage change in the spot exchange rate over time and the differential between comparable interest rates in different national capital markets is known as the International Fisher Effect. “Fisher-open” as it is often termed, 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.

So, International Fisher Effect can be defined as a theory that the spot exchange rate should change by an amount equal to the difference in interest rates between two countries.

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