This paper examines the trading relationship between United States of America and Germany, by investigating the exchange rates and interest rates. We test the presence of Covered Interest Arbitrage Parity and Relative Purchasing Power Parity. Furthermore, we also assess the impact of changes in interest and exchange rates, on the capital flows and currents accounts of both the nations. We segregate our study of the current accounts across three different time periods: 2003-2008, 2009-2014 and 2015-2017 to get a better understanding of the trends in trade between the two nations.

Keywords : Interest Rate, Exchange Rate, Purchasing Power Parity, Covered Interest Arbitrage Parity