CIMAPRA19-F03-1 Exam - Topic 1 Question 69 Discussion

Actual exam question for CIMA's CIMAPRA19-F03-1 exam

Question #: 69
Topic #: 1

D has US$10 million to invest over 12 months in either USS or GBP Its options are to invest in USS at the present USS interest rate of 10 18%. or to convert the USS to GBP at the spot rate GBP1 =US$1 61 and invest in GBP at an interest rate of 6.4%.

According to the interest rate parity theory, what will the one year forward rate be?

Give your answer to three decimal places.

A1.667

B1.668

Show Suggested Answer

Suggested Answer: A

by Deandrea at May 27, 2023, 04:45 PM

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Howard

7 months ago

Just remember, interest rate parity is key here!

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Glory

7 months ago

Wait, how can the forward rate be that high? Sounds off.

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Willow

7 months ago

Definitely going with option B, seems right to me!

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Jill

7 months ago

I think the forward rate will be around 1.668.

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Lashaunda

8 months ago

The current spot rate is GBP1 = US$1.61.

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Aja

8 months ago

I think the forward rate should be calculated using the formula: Forward Rate = Spot Rate x (1 + interest rate of domestic currency) / (1 + interest rate of foreign currency). But I need to double-check my calculations.

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Barb

8 months ago

I feel a bit confused about whether to use the exact interest rates or if there's a conversion factor involved. I hope I remember the right steps!

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Krystal

8 months ago

This question seems similar to one we practiced in class. I think we need to use the formula involving the spot rate and the interest rates for both currencies.

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Pete

8 months ago

I remember something about interest rate parity, but I'm not entirely sure how to calculate the forward rate from the interest rates given.

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Edmond

8 months ago

Wait, so we're supposed to avoid samples that are already flagged by Traps? I thought the whole point was to test Traps' functionality. Wouldn't we want to use samples that Traps is already familiar with?

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Christoper

8 months ago

This is a good question to test our understanding of the different analysis techniques. I'll eliminate the ones I'm sure aren't right, then make my best guess from the remaining options.

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My

8 months ago

Encapsulation is all about hiding the implementation details and only exposing the necessary interface to the outside world. Option A definitely seems to be the best description of this concept. I feel good about selecting that answer.

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