Does anyone else find this topic to be more of a pain that what its worth? I have a decent understanding of the concept behind it, but I feel like once they give you all the interest and exchange rates and start doing calculations it just gets a bit overwhelming for one question. I’ll probably just end up guessing on these if they are on the test cuz I’m too lazy to go through the whole process. Anybody feel the same way?
Mr_Clean, I agree the calculations can be tedious. However, I think it’s valuable in the sense that it can reinforce one’s understanding of IRP by demonstrating the arbitrage opportunities that arise when the relation doesn’t hold. At LII you’ll be introduced to a few additional, related parity relationships between foreign exchange rates, interest rates and inflation rates, so mastering IRP now will benefit you later. Even if you do see this on the exam, I think it will be presented in a way that would save you some of the more tedious steps provided that you can cull the right information quickly from the question’s introduction. At least in my experience, CFAI doesn’t seem interested in bogging us down in numerous, time-consuming calculations and typically provides shortcuts for those who understand the material sufficiently to recognize these opportunities. Anyway, it sounds like you understand the material, I’m sure you’ll crush this if it comes into play.
I agree. The kind of question they would have on the exam would have answers that required few calculations.