International Fisher effect

The international Fisher effect suggests that differences in nominal interest rates between currencies are associated with expected changes in their exchange rate, commonly through the assumption of comparable real returns. For a quote in domestic currency per foreign unit, a simple matched-period expected future rate is spot × (1 + domestic nominal rate)/(1 + foreign nominal rate). This is an expected-rate model under its assumptions, not a promised outcome. Covered interest parity instead links interest rates to a contractual forward rate, and a forward rate need not equal the future spot rate.