- CFA Exams
- CFA Level I Exam
- Study Session 4. Economics
- Reading 10. Currency Exchange Rates: Understanding Equilibrium Value
- Subject 3. A Long-Term Framework for Exchange Rates
CFA Practice Question
Why doesn't uncovered interest rate parity hold in the short term?
A. There is no combination of trades that will lock in a certain profit.
B. It is contrary to covered interest rate parity.
C. Forward exchange rates are unbiased predictors of future spot exchange rates.
Explanation: There is no riskless arbitrage condition that forces uncovered interest rate parity to hold.
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