AuthorTopic: interest rate and exchange rate
@2003-11-20 11:08:03
Could anyone help me?
I'm confused by the relationship between interest rate(IR) and exchange rate(ER).As we know, an increase in IR will result in capital inflow and then an appreciation in the home currency; however, the intertest rate parity theory says that an increase in IR will result a forward discount in the ER. Could anyone help me explain it?
@2003-11-22 11:44:31
The first talks about the exchange rate generally while the second talks about the relation between 2 concrete currencies. The IR increase would appreciate the currencys, however if the IR in one currency have increased greater than in the other one, while both would appreciate towards the third currency (your first statement), the forward discount between the two would decrease (your second statement).

CFA Discussion Topic: interest rate and exchange rate

To post a new topic or reply to a topic, please log in or register for a free user account.

I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!