AuthorTopic: Economics/Int Rates Question
@2014-05-26 06:13:25
I think I understand the concepts, and both make sense in their separate application, but in reading through the CFA material I've been struggling with a question. When the real interest rate rises, this makes investing in said country more desirable and thus logically causes the currency to appreciate. However, in Interest Rate Parity with respect to forward exchange rates, the country with the higher risk-free rate depreciates against the country with the lower rate. This makes sense in that it eliminates the arbitrage opportunity of directing money simply towards the highest interest rate, but how do these two concepts make sense together?

CFA Discussion Topic: Economics/Int Rates Question

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