Background Note | HBS Case Collection | February 1988 (Revised November 1994)

Note on Fundamental Parity Conditions

by W. Carl Kester and Richard P. Melnick

Abstract

Provides a simple framework for analyzing expected exchange rate movements. Basic parity and equilibrium conditions are presented including purchasing power parity, forward parity, interest rate parity, the domestic Fisher effect, and the international Fisher effect (Fisher open). Empirical evidence about these conditions are discussed. References are provided.

Keywords: Currency Exchange Rate; Situation or Environment;

Citation:

Kester, W. Carl, and Richard P. Melnick. "Note on Fundamental Parity Conditions." Harvard Business School Background Note 288-016, February 1988. (Revised November 1994.)