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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)] |
You have a wonderful website and definitely should take some credit for your members' outstanding grades.
Colin Sampaleanu
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.