Four way equivalence model: Difference between revisions
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(i) Interest rates; | (i) Interest rates; | ||
(ii) Spot and forward foreign exchange rates; | (ii) Spot and forward foreign exchange rates; | ||
(iii) Expected inflation rates; and | (iii) Expected inflation rates; and | ||
(iv) The expected change in spot foreign exchange rates. | (iv) The expected change in spot foreign exchange rates. | ||
The related individual linking theories are: | The related individual linking theories are: | ||
#Interest rate parity theory - linking interest rates & spot and forward foreign exchange rates. | |||
#The Fisher Effect - linking interest rates with expected inflation rates. | |||
#Expectations theory - forward foreign exchange rates and future out-turn spot foreign exchange rates. | |||
#The International Fisher Effect - interest rate differentials and expected change in spot foreign exchange rates. | |||
#Purchasing power parity theory - inflation rate differentials and expected change in spot foreign exchange rates. | |||
== See also == | == See also == | ||
* [[Carry trade]] | |||
* [[Equivalence]] | |||
* [[Expectations theory]] | * [[Expectations theory]] | ||
* [[Fisher Effect]] | * [[Fisher Effect]] | ||
* [[Interest rate parity]] | * [[Interest rate parity]] | ||
* [[International Fisher Effect]] | * [[International Fisher Effect]] | ||
* [[Model]] | |||
* [[Purchasing power parity]] | * [[Purchasing power parity]] | ||
[[Category:Knowledge_and_information_management]] | |||
[[Category:Corporate_finance]] | |||
[[Category:Identify_and_assess_risks]] | |||
Latest revision as of 08:06, 29 August 2022
A model that proposes a number of related conceptual linkages between differences in:
(i) Interest rates;
(ii) Spot and forward foreign exchange rates;
(iii) Expected inflation rates; and
(iv) The expected change in spot foreign exchange rates.
The related individual linking theories are:
- Interest rate parity theory - linking interest rates & spot and forward foreign exchange rates.
- The Fisher Effect - linking interest rates with expected inflation rates.
- Expectations theory - forward foreign exchange rates and future out-turn spot foreign exchange rates.
- The International Fisher Effect - interest rate differentials and expected change in spot foreign exchange rates.
- Purchasing power parity theory - inflation rate differentials and expected change in spot foreign exchange rates.
