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FM BPP-kit P275 Q1

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › FM BPP-kit P275 Q1

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by John Moffat.
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  • September 3, 2021 at 4:22 pm #634162
    YujiaLucy
    Member
    • Topics: 26
    • Replies: 27
    • ☆☆

    It didn’t mention should we depends on interest parity or purchasing power parity, according to the standard answer we should use the equation of interest parity to solve it. Here is my guess: as it is the six-month forward exchange rate, it is an exchange rate in short-term instead of a long-term one (where purchasing power parity should be used at) so we should use the equation of interest parity.

    Is this right? Please let me know, as usual thank you so much sir!

    September 3, 2021 at 4:52 pm #634176
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51582
    • ☆☆☆☆☆

    It has nothing to do with short or long term.

    Forward rates are always determined by interest rate parity (in real life as well as in exams).

    It seems that you have not watched my free lectures, because I explain this in the lectures.

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