Relationships among Inflation, Interest Rates, and Exchange Rates
a) Provide a summary of the purchasing power parity (PPP), interest rate parity (IRP), and the international Fisher effect (IFE).
b) Using historical data or literature review, conduct research on the relative effectiveness of the above theories in explaining the movements in values of the major currencies such the US dollar, pound Sterling, and Japanese yen over the recent two decades.
c) Explore the relative validity of the above theories in determination of the exchange rates in Jordan during the recent two decades.
d) How can the MNCs use the PPP, IRP, and IFE theories in forecasting or estimation of their future cash flows? Provide an example about a particular MNC or a fictitious company in your discussion.