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ACCA F9 lectures ACCA F9 notes
May 18, 2015 at 2:45 am
Dear Sir, I am doing the specimen questions and I am confused as to why the purchasing power parity could not have been used to forecast the 6 month forward exchange rate. The question : The home currency of ACB Co., is the dollar and it trades with a foreign Co. whose currency is the Dinar. ……….. Home Foreign country…………………..Interest…………………3%………………7%………………………………….
……………………………..Inflation…………………2%………………5%……………………………………………….The answer given is …20.39 (interest rate parity) which I understand, but why wasn’t the Purchasing Power Parity used?
John Moffat says
May 18, 2015 at 9:37 am
Forward rates are never determined by purchasing power parity.
They are determined by interest rates (and in real life give the same result as money market hedging because the bank is using the interest rates to determine the forward rate).
Forward rates are not predictions/guesses/ forecasts.
Only if we are forecasting what will happen to the spot rate in the future might we use PPP.
May 18, 2015 at 11:50 pm
Thank you…got it….forward rate using the spot rate and interest rates of both countries and future spot rate using spot rate and inflation rates of both countries!! Thank you!!
May 19, 2015 at 7:54 am
February 7, 2015 at 12:10 pm
i am afraid, u didnt talk about the fisher effect topic, do we need the formula or not necessary?
February 7, 2015 at 12:38 pm
The Fisher Effect is not directly related to exchange rates.
It relates interest rates to inflation rates and its relevance in the exam (occasionally) is when dealing with inflation in NPV calculations. It is dealt with in those lectures.
February 7, 2015 at 1:05 pm
okey. thank you sir..
September 26, 2014 at 5:27 pm
how can i download the lectures
September 26, 2014 at 5:42 pm
Lectures are not downloadable – it is the only way that we can keep this website free of charge.
July 15, 2013 at 10:52 am
I might have missed it on the video, but did you say you were going to explain why the interest rate parity formula starts with F0, as opposed to F1, like with the purchasing power formula? My curiosity is getting the better of me!
Thanks for your help.
July 15, 2013 at 11:06 am
It is more of a Paper P4 thing (both papers use the same formula sheet), but the reason is that when the banks quote forward rates (covered in the chapter/lectures on foreign exchange risk) they do not just ‘guess’ a rate but they calculate it based on the interest rates.
So….Fo is the forward rate that they quote now.
(If forward rates do not mean much to you then read my answer again when you have covered foreign exchange risk management )
July 15, 2013 at 12:19 pm
Thanks for explaining that for me. I’m working through your lectures bit by bit, so I’m sure when I’ve covered foreign exchange risk I’ll understand your answer more fully!
December 5, 2012 at 12:24 pm
I don’t understand, if the model is so unreliable, because it does not take a lot of factors into consideration, why are we supposed to learn it?
December 5, 2012 at 5:02 pm
@annchen, It is impossible to forecast future exchange rates, whatever factors you try and take into account.
Inflation and interest rates are two factors that can be measured and at least give an indication. How would you go about trying to measure other factors?
Anyway there is not exactly very much to learn since the formulae are given on the formula sheet
December 6, 2012 at 8:02 pm
monte carlo simmulation? anyway nothing approachable at f9
will attempt p4 due to your lectures, i really enjoyed them!
December 6, 2012 at 8:26 pm
@annchen, Thank you
With regard to simulation, the most he is ever likely to ask at F9 is what he asked in question 1 of June 2010.
October 24, 2012 at 12:12 pm
smashing keep updating.
October 24, 2012 at 7:52 am
Awesome… Just Loved it, using these lectures to revise some F9 Stuff for P4 Prep.
June 5, 2012 at 12:19 pm
tried thousands of times but not working…
June 5, 2012 at 1:21 pm
@jaykhawaja, Please visit the support page: http://opentuition.com/support/
May 14, 2012 at 2:26 pm
it desnt open..
April 13, 2012 at 5:43 pm
its not working here??? please guide me regarding it …
February 17, 2012 at 10:59 am
I amusing Kaplan text book but this topic isnt mentioned withing the book…
May 3, 2012 at 1:42 pm
@barbara2012, yes it is mentioned from page 322 onwards
November 30, 2011 at 2:45 pm
great stuff.By the way, the question he has discussed is actually on page number 180.
November 2, 2011 at 10:36 am
great simple explanation
October 31, 2011 at 11:21 am
Love the new lectures. The audio is much better.
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