Currency Appreciation/Depreciation believe, currency, yesterday, opposite

willsucceed

UK rates are 5% and US rates are 3%.

Which currency appreciates/depreciates and by how much?

I was discussing this with someone yesterday and I believe US appreciates 2% but they hold the opposite opinion. Which one is correct?

NO EXCUSES

Analti_Calte

Yeah, this concept trips me off. If rates are higher in UK, wouldn't investors would rush to invest in that market increasing demand for UK punds? Obviously because of IRP, the forward premium/discount on the exchange rate will reflect the current rate difference so you dont have a arbitrage profit.

janakisri, doesnt PPP formula involve Price/inflation levels and exchange rates?

Windjammer

bpdulog Wrote:
-------------------------------------------------------
> UK rates are 5% and US rates are 3%.
>
> Which currency appreciates/depreciates and by how
> much?
>
> I was discussing this with someone yesterday and I
> believe US appreciates 2% but they hold the
> opposite opinion. Which one is correct?


and this friend of yours is a level 3 candidate?

thommo77

excuse me thommo is correct , it is IRP not PPP.

And no country that was offering a high rate of interest ever saw their fx rates go up .

In fact the idea is to try and keep the fx rates as low as possible to boost exports and keep more people employed

strikethree

High inflation rates are implicitly embedded in high interest rates. Economic theory says that real interest rate is equal all over the world. Therefore high interest rates simply mean inflation rates are high and currencies should therefore depreciate.

High interest rates will only lead to currency appreciation if inflation rate is low and the central bank is simply using high interest rates to manage the economy.

pennyless

From the perspective of someone who works on a forex trading floor, let me just say that this whole currency stuff in the curriculum is weird. For one it's all quoted the wrong way around (at least to someone who is used to working with market convention). Secondly, hardly any of these theories (PPP, IRP...) hold in practice. It just kills me....I keep having to remember not only the formulas but also the "correct" notation and of course then I have to figure out which is theory and which is the real life answer.....!

ll11

kingstongal Wrote:
-------------------------------------------------------
> From the perspective of someone who works on a
> forex trading floor, let me just say that this
> whole currency stuff in the curriculum is weird.
> For one it's all quoted the wrong way around (at
> least to someone who is used to working with
> market convention). Secondly, hardly any of these
> theories (PPP, IRP...) hold in practice. It just
> kills me....I keep having to remember not only the
> formulas but also the "correct" notation and of
> course then I have to figure out which is theory
> and which is the real life answer.....!

USD/EUR or EUR:USD pls hehehe
this got me



Edited 1 time(s). Last edit at Monday, May 9, 2011 at 04:18PM by pfcfaataf.