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# Finance Dictionary - F Terms

# Fisherian Relation

The nominal interest rate in every contract will be equal to the real rate of interest plus the expected future inflation rate is called Fisherian relation: (1 þ Rt j ) ¼ (1 þ rt j)(1 þ It j ), where rt j ¼ the real rate of interest in country j at time t; Rt j ¼ the nominal rate of interest at time t; and It j ¼ the inflation rate at time t. The implication of this relationship is that if the real rate of interest is equal everywhere, then the inflation differential between countries is fully reflected in their nominal interest rate.