Economics -Fisher relation domestic, relation, countries, domestic, relation, countries

bleach

Study Session 4, Reading #19- In solving for interest rate using Int'l. Fisher relation, which country's interest rate would you apply in numerator (and the other country in denominator) when two countries are given, and there is no information about which country is domestic, as in problem #15, page 708? Thanks in advance.

kickthatcfa

Generally speaking, the domestic rate goes on top.

profil

Hank Moody Wrote:
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> Generally speaking, the domestic rate goes on top.


HankMoody, Thanks for responding. Not sure if it goes on top. Per CFAI book (equation 4 in page 679), domestic goes on the bottom?

As to my original question as how to identify which country is domestic - I think how you decipher which country is domestic is based on the rate quote. If rate quote is USD:EUR=1.4, it means the quote is for USD, so U.S. interest rate is domestic that goes on the bottom.



Edited 2 time(s). Last edit at Wednesday, March 30, 2011 at 08:41PM by vasanthcbe.

genuinecfa

Match numerator to numerator, denominator to denominator.

KungFuPanda

if you have a quote like USD:EUR (or EUR/USD), then US interest rate goes to the denominator and the Eur to the numerator.