Research Paper on:
Applying Parity Theories to the Real World

Unformatted Sample Text from the Research Paper:
factors such as the influence of international trade patterns, demand for currency, interest rates and inflation rates. However, although each of the parity theories may have logical reasoning when we  look at the actual application the number of influences and complexity of the markets mean that no single parity factor may be seen as a fully comprehensive and inclusive theory.  For example, if we consider the way in which the US dollar and UK sterling have performed relative to each other over the period 2000 - 2004 we see a  fluctuation of between $1.39 - nearly $2 to the ?1. However the economies were not indicates signs that would be expected under the parity theories. To consider this we can  look at various parity theories. When looking at empirical evidence the student should not that the majority of studies published this year still look at period before these years, so  we need to use recent research on former periods and apply these to the modern situation. Parity theories give interesting accounts  for the reasons behind the movements seen in prices, exchange rates and interest rates. In this paper we will look at several purchasing power parity theories; the absolute purchasing  power parity and the relative purchasing power parity, and how it may be impacted by the International Fisher Effect, and then at two forms of interest rate parity; covered interested  rate parity (CIRP) and uncovered interested rate parity (UCIRP). Looking first to purchasing power parity theories, this theory is one of the way that the exchange rates may behave  between two different countries according to the price levels in those countries (Anonymous, 2001). The basis of the theory is that goods or services should be the same in different