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Sir, I wanted to know about the Four-way equivalence model?
All I know is that it is a theory where inflation rates & interest rates are linked (which is the Fisher formula). Exchange rate changes due to inflation rates & interest rates.
Can you please explain what it is & whether it has been asked in any past exam question?
I tried to look for this model in your lectures but I couldn’t find one! 🙁
It is all explained in my free lectures 🙂
The Fisher formula shows how, in theory, interest rates and inflation rates move up and down together.
Purchasing power parity explains how, in theory, future spot exchange rates are determined by the relative inflation rates.
Interest rate parity explains how futures prices are determined by the relative interest rates.
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