Question

what impacts international parity?

Answer 1

There are four types of impacts on international parity:

1. The impact of change of inflation to the change in exchange rates between the countries. This is known as Purchasing Power Parity (PPP).

2. The impact of change in interest rates between the countries to the change in exchange rates. This is called Interest rate parity (IRP).

3. This parity links nominal interest rates to real interest rates and inflation.This is called fisher effect.

4.. This links interest rates of different countries to exchange rate movements.This is called International Fisher effect.