Question

what does the international fisher relation say about interest rates and inflation differentials?

Answer 1

International fisher relation will be advocating that differences which are arising between the nominal interest rates in two countries will be directly proportional to the changes in the exchange rate of their currencies at a given point of time so the it will be reflecting the equivalent of interest rate to the exchange rate of the various currencies and trying to maintain equivalence between them.

International fisher effect will be stating that expected disparity between the interest rate of two currencies is equal to the difference in the nominal interest rate of those two countries so there will always be equivalence of prices in two countries due to this relationship.

International fisher effect will be viewed as a reliable variable in the long run for determination of effect of changes in nominal interest on shift in exchange rate.