in foreign interest rates tend to draw funds away from a country's economy, and, in turn, cause the foreign currency exchange value of the country's currency to decrease. In contrast, negative changes in foreign interest rates tend to have opposite effects (Gerber, 2002).
Although there are many models to forecast, manage, and explain foreign-exchange rate changes, the most frequently used model is the purchasing power parity (PPPM) model. The basis of the PPPM is a contention that relative rates of inflation determine long-range exchange rate changes. In this model, the assumption is that exchange rates adjust in a way that insures that, subsequent to conversion into another currency, a currency in question will purchase goods and services in a foreign country equivalent to that which it could purchase in the domestic economy (Canner & Kilian, 2001).
This model also assumes that exchange rates will fluctuate with respect to relative rates of price inflation between countries. It further assumes that shifts in t
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