Logic behind IFE Investors based in the United States can earn 11 percent interest on a one-year bank deposit in Argentina (with no default risk) or 2 percent on a one-year bank deposit in the United States (with no default risk). Assess the following statement: "According to the international Fisher effect (IFE), if U.S. investors invest 1,000 Argentine pesos in an Argentine bank deposit, they are expected to receive only 20 pesos 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.
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