Answer: Both the Fisher effect and real interest rate parity

**Explanation:** For the international Fisher effect to hold true, **both the Fisher effect and real interest rate parity** must hold. **International Fisher Effect:** (i_foreign - i_domestic) = (E(S1) - S0)/S0 **Required Conditions:** 1. **Fisher Effect**: Nominal interest rate = Real interest rate + Expected inflation - i = r + π^e 2. **Real Interest Rate Parity**: Real interest rates are equal across countries - r_foreign = r_domestic If both conditions hold: - i_foreign - i_domestic = (r_foreign + π^e_foreign) - (r_domestic + π^e_domestic) - Since r_foreign = r_domestic, this simplifies to: π^e_foreign - π^e_domestic - This equals the expected exchange rate change under relative PPP Therefore, both conditions are necessary for the international Fisher effect to be valid.

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