CFA Practice Question

There are 253 practice questions for this study session.

CFA Practice Question

Real interest rate parity is based on ______.

I. uncovered interest rate parity
II. ex ante PPP
III. Fisher effect
A. I and II
B. II only
C. I and III
Explanation: If both hold, then the real yield spread between the domestic and foreign countries should be zero.

User Contributed Comments 3

User Comment
SMcalister I have no clue. I'm reading the text on all 3 of these theories and I can't answer this question. Can anyone help?
alejandroc I think RIP is ex-ante, while Fisher is expected. Just my two cents. If anybody else has a suggestion, though...
narayabh No, that's not correct Alejandro. Ex ante means before the event. Ex ante PPP is based off of relative PPP. Ex ante PPP states that the EXPECTED inflation differential = EXPECTED exchange rate differential vs. relative PPP that states ACTUAL inflation differential = ACTUAL exchange rate differential. RIP is the concept that states that forward rates are based off of future spot rates. It's the concept along with Covered IRP that yields Uncovered IRP. Hope that helps, SMcalister. Good luck everyone.
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