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Sir, can you please explain about the Four-way equivalence model?
In theory, future spot exchange rate are determine by the inflation rates in the two countries – purchasing power parity.
Forward exchange rates are determined by the interest rates in the two countries – interest rate parity.
In theory, interest rates and inflation rates are linked in that they move up and down together – the Fisher formula.
Therefore, in theory, future spot exchange rates should be equal to the forward rates.