In their approximate form, PPP, IRP, and forward rates as an unbiased predictor of the future spot rate lead to similar forecasts of the future spot rate.

Question

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PPP (purchasing power parity) and IRP (interest rate parity) both rely on the idea that currencies will adjust over time such that the prices of goods and services, and interest rates, are the same across countries. This means that in the long run, the exchange rate between two currencies should be determined by these factors. Similarly, forward rates are based on expectations of future interest rates and exchange rate movements. All of these approaches aim to predict the future spot rate and are believed to be unbiased predictors. Therefore, they generally lead to similar forecasts for the future spot rate. However, in reality, there may be deviations from these models due to various factors such as political developments, market sentiment, and unexpected events.

In Their Approximate Form, PPP, IRP, and Forward Rates as an Unbiased