How interest rate parity differ from purchasing power parity

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1. According to the CIA World Factbook, in early 2007, China had an inflation rate of 1.5%, while the United States had an inflation rate of 3.7%. The exchange rate was 7.61 yuan per U.S. dollar. How would you have expected the exchange rate to change in 2007?

2. What factors can prevent arbitrage from kicking in if PPP does not hold?

3. What is the Fisher effect?

4. How does interest rate parity differ from purchasing power parity?

5. Is it possible that PPP holds for some goods but not others?

Reference no: EM131243177

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