Reading 19: Foreign Exchange Parity Relations - LOS K ～ Q4 white, black, Foreign, interest, class

mayanfang1

Q4. Simon Peak, CFA, an international trader and economist for Canyon Peak Trading, feels that the interest and inflation rate differentials should be similar for both China and the United States. The inflation rates for China and the U.S. were 7% and 3%, respectively. Using the linear approximation of the international Fisher relation to calculate the inflation differential, his result is:

A)   3.2%.

B)   3.0%.

C)   4.0%.

mayanfang1

答案和详解如下：

Q4. Simon Peak, CFA, an international trader and economist for Canyon Peak Trading, feels that the interest and inflation rate differentials should be similar for both China and the United States. The inflation rates for China and the U.S. were 7% and 3%, respectively. Using the linear approximation of the international Fisher relation to calculate the inflation differential, his result is:

A)   3.2%.

B)   3.0%.

C)   4.0%.

Correct answer is C)

Using the linear approximation for the international Fisher relation:
r_C – r_US = E (i_C) – E (i_US) = 0.07 – 0.03 = 0.04 or 4.0%

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