Does anyone remember the question regarding if the person’s expectation for Brazil’s currency is consistent with which parity? He expected Brazil real depreciates 5%. The answer indicated that’s uncovered interest rate parity but explained that the interest differential is 4%, not 5%, which is inconsistent. Isn’t that in conflict with what they asked?
that sounds weird. I haven’t taken that sample exam but uncovered interest parity says that expected appreciation is equal to interest rate differential.
the interest rate differential was 4%. the 5% was just that analyst’s prediction, if I remember. The question was trying to get at the currency depreciation should offset the interest rate differential, according to uncovered interest rate parity.
i got that one wrong too… the options were something like A inflation parity - or someting random like that B covered interest rate partiy c purchasing power parity d uncovered interest rate parity I think it was badly worded…i mean even purchasing power parity tells you that countries with high inflation should expect to see their currencies depreciate…so why would that be wrong??