- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 8. Currency Exchange Rates: Understanding Equilibrium Value
- Subject 3. A Long-Term Framework for Exchange Rates

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**CFA Practice Question**

Which theory states this equation? Nominal interest rate = real interest rate + expected inflation rate.

B. ex ante PPP.

C. Fisher effect.

A. Uncovered interest rate parity.

B. ex ante PPP.

C. Fisher effect.

Correct Answer: C

Therefore, real interest rates fall as inflation increases, unless nominal rates increase at the same rate as inflation.

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