According to the international Fisher effect (IFE), a. Home country investors wi

Question

According to the international Fisher effect (IFE), a. Home country investors will earn the higher of the return on foreign country investments and home country b. [Home country investors will earn the same return on foreign investments as on domestic investments.], [Foreign country investors will earn the same return on foreign investments than on domestic investments.], and [Home country investors will earn the higher of the return on foreign country investments and home country investments.] c. [Home country investors will earn the same return on foreign investments as on domestic investments.] and [Foreign country investors will earn the same return on foreign investments than on domestic investments.] O d. Foreign country investors will earn the same return on foreign investments than on domestic investments

Explanation / Answer

Ans option C

It basically tells that lets assume a home investor earns 5% in home currency and 10% in foreign currency (the difference is on account of inflation rate differential) the on bringing back foreign investment returns the investor will lose on currency exchange. And vice versa.

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