Comparing Parity Theories Compare and contrast interest rate parity (discussed in the previous chapter), purchasing power parity (PPP), and the international Fisher effect (IFE).

Comparing Parity Theories Compare and contrast interest rate parity (discussed in the previous chapter), purchasing power parity (PPP), and the international Fisher effect (IFE).

Category:
December 25, 2021
12 Views
0
0

Comparing Parity Theories

Compare and contrast interest rate parity (discussed in the previous chapter), purchasing power parity (PPP), and the international Fisher effect (IFE).

Answer and ExplanationSolution by a verified expert

Here is a tip:
Interest parity, purchasing power parity, and International Fisher Effect are parity theories; but IFE has a close relationship with PPP.

Explanation
The computation of interest rate parity is based on the data at any particular time to assess the relationship between the two countries related to the differential interest rate and the forward premiums.
PPP shows the connection between the differential inflation of two countries and the movement of percentage in the spot rate over the period.
IFE shows the connection between the differential interest rates of two countries and the movement of percentage in the spot rate over the period. It relates to the nominal interest rate that is computed by the inflation expectations.
Verified Answer
Interest rate parity refers to the differential interest rate between two countries that is equal to the difference between the forward rate and spot rate.
Purchasing power parity refers to a theory that measures the relationship between exchange and inflation rates. This theory adjusts the rate of exchange to preserve the equivalent purchasing power.
The International Fisher Effect refers to a relationship of the currency value that adjusts automatically to the nominal interest rate between the two countries.

Purchase this answer to view it.
Click the button to login/signup and buy full solution at 2 USD only.

The Best Research Paper Writing Service

Would you want to pay someone to write your paper professionally from scratch? 100% Original and 0% AI Content!.

🎓 Write my Essay
📚 Write my Persuasive Essay
📋 Humanize AI Content for Turnitin
💻 Write my Reflective Essay
📑 Write my Research Paper
📜 Write my Thesis Paper
📘 Write my Dissertation
📋 Write my Case Study
📝 Write my Online Exam
✒️ Write my Term Paper
Write my Paper