The Influence of International Parity on the Exchange Rate: Purchasing Power Parity and International Fisher Effect

This article assesses the impact of the inflation and interest rates on the exchange rates. The analysis tests the relation between the inflation rate and the exchange rate by applying the Purchasing Power Parity Theory, while the relation between the interest rate and the inflation rate is tested by applying the International Fisher Effect Theory. In order to test the Purchasing Power Parity the study takes into account the period of time between 1990 – 2009, and the following countries – the USA, Germany, the UK, Switzerland, Canada, Japan and China. As for testing the International Fisher Effect Theory the period of time is the same, 1990 – 2009, but a few countries are different – the USA, Germany, the UK, Switzerland, Canada, Australia and New Zeeland. Thus, both theories analyse the USA as home country