The international Fisher effect (IFE) implies that one should not attempt to capitalize on higher interest rates in other countries. The basis of this theoretical result is that a relatively high (nominal) rate is indicative of a relatively high expected inflation in that foreign country, which in turn leads to the depreciation of the foreign currency. In reality, however, investors continue to invest overseas.

Required: Discuss why higher interest rates might still appeal to foreign investors. Focus your analysis on the possibility that inflation, interest rates, and exchange rates and their interactions in the real world are not always in line with theoretical predictions. Do not attempt to directly challenge the validity of IFE (i.e., IFE is wrong is not an acceptable discussion).