Final answer:
The IFE theory actually states that high nominal interest rates often indicate expected inflation, leading to currency depreciation, not appreciation. If a currency is expected to appreciate, yields on investments like government bonds may decrease, as the currency's demand increases leading to an increase in its value.
Step-by-step explanation:
The statement from the IFE (International Fisher Effect) theory suggesting that foreign currencies with relatively high-interest rates will appreciate is false. The IFE theory posits that currencies in countries with higher nominal interest rates are expected to depreciate, not appreciate because those higher interest rates typically reflect a higher expected rate of inflation. Therefore, if a currency is expected to appreciate, it could lead to a decrease in yields for investments such as government bonds. Investors might be more attracted to the appreciating currency and are willing to accept lower yields as they anticipate gains from the currency's appreciation. As a result, the demand for the currency increases and so does its value, leading to lower yields. High-interest rates attract foreign investment capital, which can contribute to currency appreciation, but this effect is often offset by the expected inflation reflected in those high rates.