IFE is closely related to PPP. PPP suggests a relationship between the inflation (differential of two countries) and the percentage change in the spot exchange rate over time. IFE suggests a relationship between the interest rate (differential of two countries) and the percentage change in the spot exchange rate over time. IFE is based on nominal interest rate differentials, which are influenced by expected inflation. Solution IFE is closely related to PPP. PPP suggests a relationship between the inflation (differential of two countries) and the percentage change in the spot exchange rate over time. IFE suggests a relationship between the interest rate (differential of two countries) and the percentage change in the spot exchange rate over time. IFE is based on nominal interest rate differentials, which are influenced by expected inflation..