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

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.
A) 1.667
B) 1.668

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

Actual exam question for CIMA's CIMAPRA19-F03-1 exam
Question #: 69
Topic #: 1
[All CIMAPRA19-F03-1 Questions]

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.

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Suggested Answer: A

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

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Howard
10 months ago
Just remember, interest rate parity is key here!
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Glory
10 months ago
Wait, how can the forward rate be that high? Sounds off.
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Willow
10 months ago
Definitely going with option B, seems right to me!
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Jill
11 months ago
I think the forward rate will be around 1.668.
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Lashaunda
11 months ago
The current spot rate is GBP1 = US$1.61.
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Aja
11 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
11 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
11 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
11 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
11 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
11 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
11 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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