BPP kit Mock2 Q1

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December 6, 2018 at 2:47 pm #487980
Sun
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Dear Sir,
BPP kit Mock2 Q1, why do we have to use Interest rate parity to calculate the forward rate, not Purchasing power parity? Thanks
December 6, 2018 at 5:36 pm #488053
John Moffat
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It is always interest rate parity that determines forward rates – I explain this in my free lectures. It is the same reason as for money market hedging.

Purchasing power parity is used to forecast future spot rates, which are certainly not the same as forward rates.
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