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Hello sir Can anyone please explain these two statements .they are true
1) if dollar nominal interest rate is less than euro nominal interest rate . Interest rate parity indicates that euro will depreciate against dollar
2) if dollar inflation rate is less than euro inflation rate . Purchase power parity indicates euro will appreciate against dollar
( ain’t inflation rate depreciates the currency??
The two statements as you have typed them are not both true.
The second statement is true, but the first statement is not true.
Both are explained in my free lectures of th forecasting of exchange rates (and are effectively making use of the two formulas given in the exam).