RelationshipsamongInflation,InterestRates,andExchangeRates.pdfVIP

Chapter8 Relationships among Inflation, Interest Rates, and Exchange Rates J. Gaspar: Adapted from Jeff Madura, International Financial Management 8. 1 International Finance Theories (cont) ? Purchasing Power Parity (PPP): At equilibrium, the future spot rate of a foreign currency will differ (in %) from the current spot rate by an amount that equals (in %) the inflation differential between the home and foreign countries. ? International Fisher Effect (IFE): At equilibrium, the future