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RATE
THEORIES
Theory of
Purchasing Power Parity
(PPP)
Theory of
Interest Rate Parity
In the United
States
$ 40
In India
Rs. 750
$ 15
In India
Rs. 750
$ 30
Rs. 1200
ih
if
e0
et
Then
(1 ih )
et
(1 ih )
et e0
i.
e.
t
t
(1 i f )
e0
(1 i f )
t
(1.05)
e3 0.75
$0.7945
3
(1.03)
TWO TYPES OF
PURCHASINGPOWERPARITY
Rate-time Curve
Bar Chart
Curve of Resistance
Curve of Support