- 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
The current spot exchange rate is USD1.5/GBP. The one-year interest rates for U.S. and UK are 3% and 4%, respectively. Which assumption/theory would forecast that the spot rate one year from now will be USD1.5/GBP?
A. Spot rates follow a random walk.
B. Uncovered interest rate parity.
C. Covered interest rate parity.
Explanation: However, spot rates don't actually follow a random walk.
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