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Basic Question 5 of 27
Based on covered interest rate parity, if the one year interest rate for Australian dollar (AUD) is 4% and 2% for U.S. dollars, and the exchange rate is 0.9654 (AUD/USD), what is the expected future exchange rate in one year?
User Contributed Comments 1
| User | Comment |
|---|---|
| daverco | It's Spot rate x [(1+foreign interest rate) / (1+domestic interest rate)] |
I am happy to say that I passed! Your study notes certainly helped prepare me for what was the most difficult exam I had ever taken.
Andrea Schildbach
Learning Outcome Statements
explain international parity relations (covered and uncovered interest rate parity, forward rate parity, purchasing power parity, and the international Fisher effect);
describe relations among the international parity conditions;
evaluate the use of the current spot rate, the forward rate, purchasing power parity, and uncovered interest parity to forecast future spot exchange rates;
explain approaches to assessing the long-run fair value of an exchange rate;
CFA® 2025 Level II Curriculum, Volume 1, Module 8.