CFA Practice Question

There are 253 practice questions for this study session.

CFA Practice Question

Suppose that the one year interest rate is 4% in Canada (domestic country). The expected Canadian inflation rate is 2% and the expected German inflation rate is 3%. If the international Fisher relation holds, the exact one year interest rate in Germany should be _____, and the approximate amount (by linear approximation) should be ______.
Correct Answer: 502% and 5%.

To get the exact amount: (1 + rGermany)/(1 + 0.04) = (1 + 0.03) / (1 + 0.02) => rGermany = 5.02%.
To get the approximate amount: rGermany - 0.04 = 0.03 - 0.02 => rGermany = 5%.

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