To determine the future exchange rate, when do you multiple the spot rate by the interest rate differentials, and when do you multiply it by inflation differentials?
Some of the exchange rate currencies readings show these situations:
D/F * (1 + D interest rate)/(1 + F interest rate) = Future exchange rate
While in the international asset pricing chapters, Ive seen something similar to
D/F * (1 + D inflation)/(1 + F inflation) = Future exchange rate
So, when is interest rate used, and when is inflation rate used? any clarification would be appreciated作者: eoin 时间: 2011-7-13 14:09
Doesn't the one give you the FORWARD exchange rate (i.e. using the interest rate differentials) and the other give you the EXPECTED exchange rate (i.e. using the inflation differentials)..作者: wilslm 时间: 2011-7-13 14:09
