Hello,
I am trying to understand the rationale for the answer in the ACCA FM Specimen Exam.
Per the free lecture notes/lecture, we should be calculating the future exchange rate to be
S1 = S0(1+Hc)/(1+Hb) (Using inflation figures)
OR
S1 = S0(1+Ic)/(1+Ib) (Using interest rate figures)
Q1 Specimen exam has both inflation & interest figures, both of which provide different answers. Which figures should be used?
TIA.
ACCA Forums
FMACCA FM Specimen Exam - Forecasting Foreign Currency
This is because the question is specifically asking you for a six-month forward exchange rate calculated by the interest rate parity.
The purchasing power parity (with inflation) calculates the future spot rate rather than forward rate.
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