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CIMAPRO19-P03-1 Exam - 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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Cherelle
3 months ago
Definitely using interest rate parity here!
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Rikki
3 months ago
Really? 1.78? That feels a bit high.
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Miriam
3 months ago
1.67 seems too low, don’t you think?
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Jonell
4 months ago
I think it’ll be closer to 1.74.
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Lizette
4 months ago
Interest rates are 2% for the UK and 6% for the USA.
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Maurine
4 months ago
I feel like I should be able to derive the expected rate using the interest rates, but I keep mixing up the steps.
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Laurel
4 months ago
I practiced a similar question last week, and I think the answer was around 1.74, but I’m not confident about the calculations.
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Martina
4 months ago
I think the GBP/USD spot rate should increase since the US has a higher interest rate, but I can't recall how to calculate the expected rate.
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Galen
5 months ago
I remember we covered interest rate parity in class, but I'm a bit unsure about the exact formula to use for this question.
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Elsa
5 months ago
Ah, interest rate parity - I remember learning about this in class. Let me think through the logic and make sure I apply the formula correctly. I've got this!
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Asha
5 months ago
This is a classic question on interest rate parity. I'm confident I can solve this by plugging the given information into the formula and doing the math. Should be a straightforward calculation.
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Sanda
5 months ago
Okay, I think I've got this. I'll need to use the formula for interest rate parity to find the expected spot rate in six months. Let me work through the calculations step-by-step.
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Stevie
5 months ago
Hmm, I'm a bit unsure about the interest rate parity theory and how to apply it here. I'll need to review my notes to make sure I understand the concept properly.
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Jeniffer
5 months ago
This looks like a straightforward interest rate parity question. I'll need to calculate the expected spot rate based on the given interest rates.
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Charlesetta
10 months ago
Ugh, interest rate parity... the only thing more confusing than that is trying to figure out how many licks it takes to get to the center of a Tootsie Pop. Oh well, let's give this a shot!
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Gwenn
9 months ago
C) GBP/USD = 1.65
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Jerilyn
9 months ago
B) GBP/USD = 1.78
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Edna
9 months ago
A) GBP/USD = 1.74
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Huey
10 months 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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Rhea
8 months ago
Great, let's go with A) GBP/USD = 1.74 then.
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Ernie
9 months ago
I think it's A) GBP/USD = 1.74 too.
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Marleen
9 months ago
A) GBP/USD = 1.74
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Cheryll
10 months 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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Stephanie
8 months ago
Yeah, I agree with you. C) GBP/USD = 1.65 seems like the most likely scenario based on the interest rates.
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Winifred
9 months ago
I don't think so, the interest rate parity theory suggests a different depreciation for the GBP.
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Iraida
9 months ago
But what about the possibility of GBP/USD = 1.74? Could that be a potential outcome?
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Leatha
9 months ago
I think you're right, C) GBP/USD = 1.65 makes sense with the interest rate difference.
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Denae
10 months 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
10 months 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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Candida
9 months ago
I think the answer is A) GBP/USD = 1.74.
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Gianna
9 months ago
A) GBP/USD = 1.74
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Nelida
11 months ago
So, the answer would be B) GBP/USD = 1.78, right?
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Lorrine
11 months ago
I agree, with the higher interest rate in the USA, the GBP/USD spot rate should go up.
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Rebbecca
11 months ago
I think the GBP/USD spot rate will increase.
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