Effect of the exchange rates and inflation on the investment Statistics Project

Effect of the exchange rates and inflation on the investment - Statistics Project Example Further, the use of PPP will help in determining the effect of inflation rates on exchange rates in each of the two countries. The knowledge about the inflation rate will conclusively lead to comparison of the intensity of investment between the countries. Accessing the relationship between exchange rates, interest rates and inflation is essential in understanding the intensity of investment. The necessity of PPP theory in this project arises because it acknowledges the changing patterns of trade usually witnessed between two countries as the result of the difference in inflation rates. In order to achieve the objective of the project, the baseline is to analyse the change of exchange rates between UK and USA through testing the PPP theory. Data given for the quarter period will be used in performing regression in Minitab thereby giving information on the differences about the exchange rates. Intuitively, the basis of this project is that absolute form of PPP cannot be used because i t does not acknowledge the differences in prices thereby calling for the use of relative form. The project involves testing the relevance of PPP theory through a real life situation comparison of the exchange rate and inflation rate between UK (pound) and US (dollar) for the period of 10 years quarterly (from 2000 to 2009). Success in carrying out this test calls for perusing through the EIU database. In this case, US and UK were selected as the subjects for comparison followed by acknowledging the period of time as from 2000 to 2009.