According to

Interest Rate Parity, Purchase Power Parity, and the Fisher Effect, internationally countries are tied together by their currency exchange rates and interest rates.

Malhotra (2011), "Covered

Interest Rate Parity among BRIC Nations," Journal of Business & Economic Studies 17: 37-47.

While there are many doubts on the possibility for the fundamental models to determine the exchange rate in the short term, uncovered

interest rate parity starts to hold more often, which means that interest rates could determine the exchange rate better in the future.

Running all three shocks simultaneously shows that almost the entire appreciation of sterling over this period can be explained by uncovered

interest rate parity.

One of the traditional economic theories in this field, known as the

interest rate parity, states that the currency with a risen interest rate will depreciate with regard with its pair and vice versa, the currency which has a relatively smaller interest rate is prone to appreciate (5).

Fluctuations in the foreign exchange market rely on the

interest rate parity theorem, which relates domestic interest rates and exchange rates.

The

interest rate parity must hold based on the following equation

This study does an empirical test of the

interest rate parity between the United States and selected emerging Asian economies of Malaysia, Korea, Singapore, Pakistan, India, Thailand and Philippines, and explores opportunity for covered interest arbitrage.

Do purchasing power parity and uncovered

interest rate parity hold in the long-run?

The work of Levich shows that spot rate forecasts based on the futures rate are approximately equal to forecasts based on

interest rate parity with interest rates obtained from the Euro-currency markets.

as explained by the

interest rate parity relationship, this article