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Basic Question 16 of 27
Which of the following statement(s) is (are) true about covered interest rate parity?
II. It links spot exchange rates, expected exchange rates, and interest rates.
III. It states that the forward discount or premium is equal to the interest rate differential.
IV. It states that the interest rate movements are supposed to exactly offset inflation differentials.
I. It is a financial arbitrage condition that does not involve any economic theory.
II. It links spot exchange rates, expected exchange rates, and interest rates.
III. It states that the forward discount or premium is equal to the interest rate differential.
IV. It states that the interest rate movements are supposed to exactly offset inflation differentials.
User Contributed Comments 3
| User | Comment |
|---|---|
| mikeb119 | Fisher is for inflation and interest rates. PPP is for inflation and exchange rates. |
| NIKKIZ | How different is an expected spot exchange rate different from a forward rate? By replacing one with the other, 2 would be true as well. |
| davidt876 | yea i'm with you Nikki-Z |
Your review questions and global ranking system were so helpful.
Lina
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.