Irving Fisher was the proposer of the International Fisher Effect theory.  The International Fisher Effect is an economic theory which states that an expected change in the exchange rate between any two currencies is equivalent to the difference between the two countries’ nominal interest for that time. The International Fisher Effect is a combination of two conditions – the Generalized Fisher Effect and Purchasing Power Parity. With the Purchasing Power Parity, when a country’s inflation rises, then that country’s currency will decline in value relative to another country with lower interest rates. Under the Generalized Fisher Effect, the implication is that the country with the higher inflation rate will also experience a higher interest rate than countries with lower inflation. The underlying rational for this theory is that in a country that has a higher interest rate, the rate of inflation must also be higher. This increased amount of inflation then works as a declining factor for the currency in the country with the high interest rate, causing it to depreciate against the country with lower interest rates.  The following equation depicts the International Fisher Effect:  = In general, the higher the inflation rate of a country, the lower the value of its currency.  Thus, if an investor is investing in foreign market securities, the actual return depends on not only the foreign interest rate, but also on the percentage change in the value of the foreign currency. The Fisher Effect is used by forecasting future rates of inflation, not relying on inflation rates of the past.  In essence, according to the International Fisher Effect, the spot exchange rate should change to adjust for differences in interest rates between two countries.