This report provides a comprehensive analysis of Purchasing Power Parity (PPP), International Fisher Effect (IFE), and Interest Rate Parity (IRP) theories and their application in understanding exchange rate dynamics. The study investigates the correlation between the Great Britain Pound (GBP), Euro, and US Dollar exchange rates using regression analysis and weekly data from 2010 to 2019. It explores the influence of macroeconomic factors on exchange rate volatility and tests the accuracy of exchange rate models derived from PPP, IFE, and IRP. The report examines the long-run behavior of exchange rates under these theories, offering insights into the relationships between inflation rates, interest rates, and forward exchange rates. The research aims to determine the significance of these theories in explaining exchange rate movements, providing a detailed examination of the relationships between various financial and economic factors. The report includes an introduction to the core concepts, a literature review, a detailed methodology section, data analysis and discussion of findings, and concluding remarks with recommendations and limitations.
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