Hoping someone can explain what the difference between the two are: they both use S1 = S0 * [(1+rdc)/(1+rfc)] don’t they? Thanks
uncovered irp is E(S1) = while covered IRP is S1 = so Uncovered IRP is an expectation, and may not always hold. Covered IRP should hold always.
Thanks CP, just what I was after
It truly is an expectation. In the CFA sample, they have a question where it says some guy expected it to fall by 5%. And if you used the IR or inflation rates to work out the depreciation, you dont get 5%. Which means that guy is using “uncovered IRP”. Seems if you guess/expect a random rate, its called uncovered.
bobsters, that’s pretty much where I was having problems - in questions I couldn’t distinguish between which mehtod was being used, now I know to look out for words like ‘expected’ etc