CFA Practice Question

There are 253 practice questions for this study session.

CFA Practice Question

The domestic risk-free interest rate is 3.5% per year in Canada, and 3% in the U.S. A Canadian fixed income fund manager chooses to invest in the U.S. money market. She uses one-year USD/CAD forward contract to fully hedge her USD investment. When is her one-year all-in holding return in CAD?

A. uncertain unless the forward rate is given.
B. 3.5%.
C. 3%.
Correct Answer: B

This is covered interest rate parity. She cannot make more or less than the domestic risk-free return.

User Contributed Comments 1

User Comment
pandsisd how do we know that covered interest rate parity holds ?
You need to log in first to add your comment.