### CFA Practice Question

There are 227 practice questions for this study session.

### CFA Practice Question

The current exchange rate between Thai bahts and US\$ is 35 baht/\$1. The one-year interest rate available on U.S. treasury securities is 4.5%, and the equivalent rate on Thai debt instruments is 13.5%. According to interest rate parity, what should the one-year forward Baht/\$ exchange rate be?
A. 38.014
B. 36.575
C. 32.225
Explanation: F/35 = (1 + 0.135)/(1 + 0.045); F = 38.014 (remember, the higher interest rate currency is expected to depreciate).

### User Contributed Comments4

User Comment
isida currency is quoted DC/FC
sharon Thai is domestic
volkovv From US investor perspective it is FC/DC, works both ways, just got to be careful with the formula.
bbadger Just remember higher interest rate currency has to depreciate to make IR parity work and you can figure out which way to multiply/divide regardless of which way the currency is quoted.
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