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Discuss the main theories of international finance and assess how each of them would pass Professor Buckley's test of standing up in the real world.
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The assessed coursework assignment comprises the following question: "The test of a good theory is how well it stands up in the real world" Professor Adrian Buckley, "Multinational Finance" Discuss the main theories of international finance and assess how each of them would pass Professor Buckley's test of standing up in the real world. Foreign Exchange Rate Theory At this moment, there are many theories about the foreign exchange rate. Every theories also have different definition and assumption. However, there are only five main theories, which are recognised and popular in the present situation. These three theories are Theory of Purchasing Power Parity (PPP), Theory of Interest Rate Parity, The Fisher Effect, The International Fisher Effect, and Expectations Theory. Theory of Purchasing Power Parity (PPP) According to this theory, it said, if the spot exchange rate of two countries start from the equilibrium point, the different in the inflation rate of these countries will...
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