Four way equivalence model: Difference between revisions

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The related individual linking theories are:
The related individual linking theories are:


(1) Interest rate parity theory - linking interest rates & spot and forward foreign exchange rates.
#Interest rate parity theory - linking interest rates & spot and forward foreign exchange rates.
 
#The Fisher Effect - linking interest rates with expected inflation rates.
(2) 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.  
(3) Expectations theory - forward foreign exchange rates and future out-turn spot foreign exchange rates.
#Purchasing power parity theory - inflation rate differentials and expected change in spot foreign exchange rates.   
 
(4) The International Fisher Effect - interest rate differentials and expected change in spot foreign exchange rates.  
 
(5) 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:

  1. Interest rate parity theory - linking interest rates & spot and forward foreign exchange rates.
  2. The Fisher Effect - linking interest rates with expected inflation rates.
  3. Expectations theory - forward foreign exchange rates and future out-turn spot foreign exchange rates.
  4. The International Fisher Effect - interest rate differentials and expected change in spot foreign exchange rates.
  5. Purchasing power parity theory - inflation rate differentials and expected change in spot foreign exchange rates.


See also