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CIMA Exam CIMAPRO19-P03-1 Topic 3 Question 85 Discussion

Actual exam question for CIMA's CIMAPRO19-P03-1 exam
Question #: 85
Topic #: 3
[All CIMAPRO19-P03-1 Questions]

The long-term prospects for interest rates in the UK and the USA are 2% and 6% per annum respectively.

The GBP/USD spot rate is currently GBP/USD1.71.

Usinginterestrateparitytheory, what GBP/USD spot rate would you expect to see insix months' time?

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Suggested Answer: B, C, D

by Kenda at Jan 15, 2025, 02:21 AM

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Huey
1 days ago
This is a piece of cake! Just plug and chug the numbers into the parity formula. I could do this in my sleep. Although, I'd probably prefer to be sleeping right now instead of taking this exam.
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Cheryll
8 days ago
I bet the correct answer is C) GBP/USD = 1.65. That's the only one that seems to match the expected depreciation of the GBP based on the interest rate differential.
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Denae
12 days ago
Hmm, let me think this through. The UK rate is 2% and the US rate is 6%, so the interest rate differential is 4%. Using the parity formula, I'd expect the GBP to depreciate against the USD by about 4% over the 6-month period.
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Cherelle
20 days ago
This question is a classic application of interest rate parity theory. The key is to calculate the expected change in the spot rate based on the interest rate differential between the two countries.
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Nelida
24 days ago
So, the answer would be B) GBP/USD = 1.78, right?
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Lorrine
25 days ago
I agree, with the higher interest rate in the USA, the GBP/USD spot rate should go up.
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Rebbecca
27 days ago
I think the GBP/USD spot rate will increase.
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