Testing the Foreign Exchange Parity Relations: A Case Analysis of UK Sterling, Japanese Yen and Us Dollar

Ibrahim Zubairu

doi:doi:10.11648/j.ijefm.20140206.18

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Testing the Foreign Exchange Parity Relations: A Case Analysis of UK Sterling, Japanese Yen and Us Dollar

Ibrahim Zubairu

Published in International Journal of Economics, Finance and Management Sciences (Volume 2, Issue 6)

Received: 28 November 2014 Accepted: 9 December 2014 Published: 27 December 2014

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Abstract

Since the financial globalization has expanded and developed increasingly fast in recent years, the international parity relationships have been extensively studied due to their importance in international trade and investment. This paper investigates purchasing power parity (PPP), interest rate parity (IRP) and unbiased expectation hypothesis by analyzing three main currencies; UK sterling, Japanese Yen and US dollar during 2008 to 2010. Further, forward premium or discount is calculated and interpret in the study with time series data and ordinary least square (OLS) regression methodologies. It was found that, the unbiased expectation hypothesis and international interest parity holds for Japan-US case but does not hold for Japan-UK case. Finally, the purchasing Power Parity (PPP) holds for both two cases, which is varies with most previous literature.

Published in	International Journal of Economics, Finance and Management Sciences (Volume 2, Issue 6)
DOI	10.11648/j.ijefm.20140206.18
Page(s)	356-361
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2014. Published by Science Publishing Group

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Testing the Foreign Exchange Parity Relations: A Case Analysis of UK Sterling, Japanese Yen and Us Dollar

References

[1]	Baig, T. and Golfajn, I. (2002), ‘Monetary Policy in the Aftermath of Currency Crises: The Case of Asia’, Review of International Economics, vol. 10(1), pp.92-112.
[2]	Chinn, M. D., & Meredith, G. (2004), ‘Monetary policy and long-horizon uncovered interest parity’, International Monetary Fund Staff Papers, vol.51, pp.409-430.
[3]	Cosander, P. A., & Laing, B. R. (1981), ‘Interest Rate Parity Tests: Switzerland and Some Major Western Countries’, Journal of Banking and Finance, vol.5, pp.187-200.
[4]	Lothian, J.R., & Wu L. (2005), ‘Uncovered Interest-Rate Parity over the Past Two Centuries’, Frank J. Petrilli Center for Research in International Finance CRIF Working Paper series.
[5]	MacDonald, R. (1988), Floating exchange rates: Theories and evidence, Psychology Press.
[6]	McCallum, B. T. (1994), ‘A reconsideration of the uncovered interest rate parity conditions’, Journal of Monetary Economics, vol.33, pp.105-132.
[7]	Fama, E. F. (1984), ‘Forward and spot exchange rates’, Journal of Monetary Economics, vol.14, pp.319-338.
[8]	Froot, K. A., & Frankel, J. A. (1989), ‘Forward Discount Bias: Is it an Exchange Risk Premium?’ , The Quarterly Journal of Economics, Vol.104, No. 1, pp.139-161.
[9]	Joseph, N. L. (1995), ‘Co-integration, Error-correction Models, and Forecasting Using Realigned Foreign Exchange Rates’, Journal of Forecasting, vol.14, pp.499-522.
[10]	O’Connell, P. G. J. (1998), ‘The Overvaluation of Purchasing Power Parity’, Journal of International Economics.
[11]	Raymond, W. S. (2001), ‘Price and Volatility Spillovers between Interest Rate and Exchange Value of the US Dollar’, Global Finance Journal, vol.12, pp.95-107.
[12]	Rogoff, K. (1996), ‘The Purchasing Power Parity Puzzle’, Journal of Economic Literature.
[13]	Thornton, D. L., 1989, ‘Tests of Covered Interest Rate Parity’, Economic Research of Federal Reserve Bank of St. Louis.

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APA Style

Ibrahim Zubairu. (2014). Testing the Foreign Exchange Parity Relations: A Case Analysis of UK Sterling, Japanese Yen and Us Dollar. International Journal of Economics, Finance and Management Sciences, 2(6), 356-361. https://doi.org/10.11648/j.ijefm.20140206.18

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ACS Style

Ibrahim Zubairu. Testing the Foreign Exchange Parity Relations: A Case Analysis of UK Sterling, Japanese Yen and Us Dollar. Int. J. Econ. Finance Manag. Sci. 2014, 2(6), 356-361. doi: 10.11648/j.ijefm.20140206.18

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AMA Style

Ibrahim Zubairu. Testing the Foreign Exchange Parity Relations: A Case Analysis of UK Sterling, Japanese Yen and Us Dollar. Int J Econ Finance Manag Sci. 2014;2(6):356-361. doi: 10.11648/j.ijefm.20140206.18

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@article{10.11648/j.ijefm.20140206.18,
  author = {Ibrahim Zubairu},
  title = {Testing the Foreign Exchange Parity Relations: A Case Analysis of UK Sterling, Japanese Yen and Us Dollar},
  journal = {International Journal of Economics, Finance and Management Sciences},
  volume = {2},
  number = {6},
  pages = {356-361},
  doi = {10.11648/j.ijefm.20140206.18},
  url = {https://doi.org/10.11648/j.ijefm.20140206.18},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijefm.20140206.18},
  abstract = {Since the financial globalization has expanded and developed increasingly fast in recent years, the international parity relationships have been extensively studied due to their importance in international trade and investment. This paper investigates purchasing power parity (PPP), interest rate parity (IRP) and unbiased expectation hypothesis by analyzing three main currencies; UK sterling, Japanese Yen and US dollar during 2008 to 2010. Further, forward premium or discount is calculated and interpret in the study with time series data and ordinary least square (OLS) regression methodologies. It was found that, the unbiased expectation hypothesis and international interest parity holds for Japan-US case but does not hold for Japan-UK case. Finally, the purchasing Power Parity (PPP) holds for both two cases, which is varies with most previous literature.},
 year = {2014}
}

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TY  - JOUR
T1  - Testing the Foreign Exchange Parity Relations: A Case Analysis of UK Sterling, Japanese Yen and Us Dollar
AU  - Ibrahim Zubairu
Y1  - 2014/12/27
PY  - 2014
N1  - https://doi.org/10.11648/j.ijefm.20140206.18
DO  - 10.11648/j.ijefm.20140206.18
T2  - International Journal of Economics, Finance and Management Sciences
JF  - International Journal of Economics, Finance and Management Sciences
JO  - International Journal of Economics, Finance and Management Sciences
SP  - 356
EP  - 361
PB  - Science Publishing Group
SN  - 2326-9561
UR  - https://doi.org/10.11648/j.ijefm.20140206.18
AB  - Since the financial globalization has expanded and developed increasingly fast in recent years, the international parity relationships have been extensively studied due to their importance in international trade and investment. This paper investigates purchasing power parity (PPP), interest rate parity (IRP) and unbiased expectation hypothesis by analyzing three main currencies; UK sterling, Japanese Yen and US dollar during 2008 to 2010. Further, forward premium or discount is calculated and interpret in the study with time series data and ordinary least square (OLS) regression methodologies. It was found that, the unbiased expectation hypothesis and international interest parity holds for Japan-US case but does not hold for Japan-UK case. Finally, the purchasing Power Parity (PPP) holds for both two cases, which is varies with most previous literature.
VL  - 2
IS  - 6
ER  -

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Author Information

Ibrahim Zubairu

Department of Accountancy Studies, School of Business, Accra Polytechnic, Accra, Ghana

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APA Style

Ibrahim Zubairu. (2014). Testing the Foreign Exchange Parity Relations: A Case Analysis of UK Sterling, Japanese Yen and Us Dollar. International Journal of Economics, Finance and Management Sciences, 2(6), 356-361. https://doi.org/10.11648/j.ijefm.20140206.18

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ACS Style

Ibrahim Zubairu. Testing the Foreign Exchange Parity Relations: A Case Analysis of UK Sterling, Japanese Yen and Us Dollar. Int. J. Econ. Finance Manag. Sci. 2014, 2(6), 356-361. doi: 10.11648/j.ijefm.20140206.18

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AMA Style

Ibrahim Zubairu. Testing the Foreign Exchange Parity Relations: A Case Analysis of UK Sterling, Japanese Yen and Us Dollar. Int J Econ Finance Manag Sci. 2014;2(6):356-361. doi: 10.11648/j.ijefm.20140206.18

Copy | Download

@article{10.11648/j.ijefm.20140206.18,
  author = {Ibrahim Zubairu},
  title = {Testing the Foreign Exchange Parity Relations: A Case Analysis of UK Sterling, Japanese Yen and Us Dollar},
  journal = {International Journal of Economics, Finance and Management Sciences},
  volume = {2},
  number = {6},
  pages = {356-361},
  doi = {10.11648/j.ijefm.20140206.18},
  url = {https://doi.org/10.11648/j.ijefm.20140206.18},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijefm.20140206.18},
  abstract = {Since the financial globalization has expanded and developed increasingly fast in recent years, the international parity relationships have been extensively studied due to their importance in international trade and investment. This paper investigates purchasing power parity (PPP), interest rate parity (IRP) and unbiased expectation hypothesis by analyzing three main currencies; UK sterling, Japanese Yen and US dollar during 2008 to 2010. Further, forward premium or discount is calculated and interpret in the study with time series data and ordinary least square (OLS) regression methodologies. It was found that, the unbiased expectation hypothesis and international interest parity holds for Japan-US case but does not hold for Japan-UK case. Finally, the purchasing Power Parity (PPP) holds for both two cases, which is varies with most previous literature.},
 year = {2014}
}

Copy | Download

TY  - JOUR
T1  - Testing the Foreign Exchange Parity Relations: A Case Analysis of UK Sterling, Japanese Yen and Us Dollar
AU  - Ibrahim Zubairu
Y1  - 2014/12/27
PY  - 2014
N1  - https://doi.org/10.11648/j.ijefm.20140206.18
DO  - 10.11648/j.ijefm.20140206.18
T2  - International Journal of Economics, Finance and Management Sciences
JF  - International Journal of Economics, Finance and Management Sciences
JO  - International Journal of Economics, Finance and Management Sciences
SP  - 356
EP  - 361
PB  - Science Publishing Group
SN  - 2326-9561
UR  - https://doi.org/10.11648/j.ijefm.20140206.18
AB  - Since the financial globalization has expanded and developed increasingly fast in recent years, the international parity relationships have been extensively studied due to their importance in international trade and investment. This paper investigates purchasing power parity (PPP), interest rate parity (IRP) and unbiased expectation hypothesis by analyzing three main currencies; UK sterling, Japanese Yen and US dollar during 2008 to 2010. Further, forward premium or discount is calculated and interpret in the study with time series data and ordinary least square (OLS) regression methodologies. It was found that, the unbiased expectation hypothesis and international interest parity holds for Japan-US case but does not hold for Japan-UK case. Finally, the purchasing Power Parity (PPP) holds for both two cases, which is varies with most previous literature.
VL  - 2
IS  - 6
ER  -

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