The International Fisher Effect, also known as the assumption of Uncovered Interest Parity, which states that an expected change in the current exchange rate between any two currencies should be equivalent to the difference between the two countries’ nominal interest rates at that point in time. Essentially, the country with the higher interest rate generally will have a higher inflation rate. Since the inflation rate is higher than the comparison country, that increased amount will affect the currency of the country with the higher interest rate to depreciate compared to the country with the lower interest rate. What this equation is trying to depict is that Fisher believes that the real interest rate in an economy is independent of monetary variables, meaning the country with the lower nominal interest rate would also have a lower rate of inflation, and thus raising the real value of the countries’ currency over time. Ironically, most of the international investors tend to do the opposite of the International Fisher Effect, by investing in countries with higher nominal interest rates and divesting in countries with lower nominal interest rates. This seems to be the most efficient way for investors to be able to earn a greater rate of return on their investments, rather than showing losses. In addition to earning a higher return on their investments, investors also increase the value of the currency in the particular country in which they are investing in with the higher nominal interest rate, effectively negating the International Fisher Effect. The International Fisher effect holds that the real interest rates must be the equivalent across all developed countries, which requires capital market integration. Capital market integration simply states that capital must be able to flow freely through borders of developed countries without restrictions of the government, and other currency restrictions.