Page 43 - FINAL CFA SLIDES DECEMBER 2018 DAY 6
P. 43
Session Unit 5:
20. Currency Exchange Rates
LOS 20.h: Calculate and interpret the forward rate consistent with the spot rate and the interest rate in each
currency, p.163
Example: Calculating the arbitrage-free forward exchange rate with 90-day interest rates
The spot ABE/DUB exchange rate is 4.5671, the 1 year riskless ABE rate is 5%, and the 1 year riskless
DUB rate is 3%. What is the 90-day forward exchange rate that will prevent arbitrage profits?
But what if forward rate was 4.6000 so that the depreciation of ABE was
Less than as implied by parity as above?
