between interest and inflation rates. The IFE theory suggests that currency of any country with a relatively higher interest rate will depreciate because high nominal interest rates reflect expected inflation. Assuming that the real rate of return is the same across countries, differences in interest rates between countries may be attributed to differences in expected inflation rates. The idea behind the relationship between the change in the exchange rate and the inflation differential is related to the exchange rate determination. For example, when home inflation rate is higher than foreign inflation rate, you are inclined to buy foreign goods, which leads to exchanging domestic currency for foreign currency.