Logic behind ife investors based in the u.s.

Reference no: EM131043336

Logic Behind IFE Investors based in the U.S. can earn 11% interest on a one-year bank deposit in Argentina (with no default risk) or 2% on a one-year U.S. bank deposit in the U.S. (with no default risk). Assess the following statement: "According to the international Fisher effect (IFE), if U.S. investors invest 1000 Argentine pesos in an Argentine bank deposit, they are expected to receive only 20 pesos (2% 1,000 pesos) as interest." Is this statement a correct explanation of why the international Fisher effect would discourage U.S. investors from investing in Argentina? If not, provide a more accurate explanation for why investors who believe in IFE would not pursue the Argentine investment in this example.

Reference no: EM131043336

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