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Hi
Have I got this right, in my head?
Interest rate parity theory is that interest rates in overseas countries will equate to the same as at home as the balancing factor will be purchasing power parity, this is to discourage people trading overseas merely to take advantage of more favourable interest rates. If a country has high inflation (high interest rates) its currency will be weaker)
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Hi Karen,
I am afraid I can’t say I like your explanation of how interest rates, inflation rates, spot rates and forward exchange rates inter-relate with each other !!!
As I believe this is an important area for Thursday’s exam I have attached a few pages of notes that I have put together which I trust will quickly provide you with a complete and thorough grasp of this important area of the exam syllabus – the Four Way Equivalence Model.
After looking at these unique notes, you should be in no doubt about exactly what IRPT, PPPT, The Fisher Effect and the INTERNATIONAL FISHER effect mean and how and what they are used for … especially helping to predict the Forward Rate of exchange !
Let me know what you think in the morning …. of course, if I can be of further assistance please let me know.
Good luck, Kevin Kelly
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file attached
I cannot see attachment anywhere? first time I have used this service, so I could be missing the obvious somewhere?
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Karen,
The file does not seem appear on the forum after uploading it !!!
Send me your email address to kevin@accaresidential.com and I’ll send the file straight to you
Regards, Kevin
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