International Finance

Minimum of Pages is 3 pages

You will need to write a research essay to answer two questions: 1. do PPP and IFE hold? 2. If PPP does not hold in practice, why? If IFE does not hold, why?

Pick two countries, ideally, I would prefer a geologically distant country pair, collect their monthly or weekly data for inflation, interest rates, and exchange rates between these two countries, apply the full equation of PPP, IEF to calculate the expected percentage change of the spot rate, and then compare it with the realized Spot rate. If it holds, the two lines you draw and put together will be similar or overlapping to each other. FOR THE DATA, USE https://data.oecd.org/ (10 YEARS MONTHLY DATA.)

Check one thing in the requirements:

Please calculate the expected spot rate by using the percentage change of spot rate you acquired from PPP and IFE equations. And then the expected spot rate could be compared with the realization of the spot rate (exchange rate data you can collect).

After your calculation, please write down an essay in detail to talk about what is your conclusion, and why. Please make sure the analysis part of the project addresses the issue as: does PPP and IFE holds according to the project, what is the relationship of PPP and IFE, and explain some possible reasons for why they do not hold. Moreover, I would not mind if you can describe the data a little bit, such as the trend of the exchanges rate, inflation, and interest rate.

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