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Basic Question 19 of 27
The domestic risk-free interest rate is 3.5% per year in Canada, and 3% in the U.S. A Canadian fixed income fund manager chooses to invest in the U.S. money market. She uses one-year USD/CAD forward contract to fully hedge her USD investment. When is her one-year all-in holding return in CAD?
B. 3.5%.
C. 3%.
A. uncertain unless the forward rate is given.
B. 3.5%.
C. 3%.
User Contributed Comments 1
| User | Comment |
|---|---|
| pandsisd | how do we know that covered interest rate parity holds ? |
I passed! I did not get a chance to tell you before the exam - but your site was excellent. I will definitely take it next year for Level II.
Tamara Schultz
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.