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exchange rate determinant theories pt
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exchange rate determinant theories pt interest rates parity purchasing power parity with examples c computing exchange rates international fisher effect
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Exchange rate determinanttheories
Interest rate parity
1
, Interest rate parity
• Once market forces cause interest rates and
exchange rates to adjust such that covered
interest arbitrage is no longer feasible, there
is an equilibrium state referred to as interest
rate parity (IRP). In equilibrium, the
forward rate differs from the spot rate by a
significant amount to offset the interest rate
differential between two currencies
2
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