- CFA Exams
- CFA Exam: Level II 2021
- Study Session 4. Economics
- Reading 10. Currency Exchange Rates: Understanding Equilibrium Value
- Subject 3. A long-term framework for exchange rates
CFA Practice Question
Which of the following theory links forward exchange rates and expected spot exchange rates?
II. Covered interest rate parity.
III. The Fisher relation.
IV. Uncovered interest rate parity.
I. Purchasing power parity.
II. Covered interest rate parity.
III. The Fisher relation.
IV. Uncovered interest rate parity.
Correct Answer: II and IV
If both are true, we can conclude that expected exchange rate movements equal the forward discounts or premiums.
User Contributed Comments 1
| User | Comment |
|---|---|
| davidt876 | haven't they been telling us this entire time that uncovered interest rate parity does not include forward rates - only spot rates and interest rates? |