Sir please confirm so that im 100% sure:
Purchasing power parity - holds in long term rather than short term, = future rate
Interest Rate parity - holds in short term rather than long term, =forward rate
some questions confuse me saying that purchasing power parity is forward rate... Please confirm.
MC22 - September 2016 Specimen: Forward Rate can be found by multiplying Spot rate by Ratio of inflation Rates of two countries (that;s wrong isnt it?) its ratio of interest rates?
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Forward and Future
9y ago#1This question is not asking about forward rates.
In the long term, both purchasing power parity and interest rate parity should result in future spot rates (because interest rates and inflation rates go up and down together).
The answer does not say that the forward rate is found by multiplying by the inflation rates.
The question refers to the currency weakening and this is what happens to the spot rates in the future (which is nothing to do with forward rates).
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