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Four-way equivalence model

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Four-way equivalence model

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by John Moffat.
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  • April 11, 2021 at 5:59 pm #616828
    John1998m
    • Topics: 62
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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! 🙁

    April 12, 2021 at 8:17 am #617104
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 49628
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    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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