Isn’t Malaysia the DC in this question and Europe the FC? If so then aren’t the numbers reversed in the answer explanation? The Asian Spec Fund, managed by Jonathan Khamal, CFA, engages in currency speculation for its clients. Based in Paris, Khamal believes that there is an opportunity to speculate on the Malaysian Ringgit. The current spot exchange rate is 4.417 Malaysian Ringgit per euro. He believes that the international Fisher relation holds on the assumption that the ratios of interest and inflation rates are equal among developed and emerging countries. For comparative purposes, one of Malaysia’s main financial trading partners is Europe. The current nominal interest rate for the European Economic Community is 11.76 percent and the annual inflation rate is 8.50 percent. The Malaysian nominal interest rate is 7.60 percent and the annual inflation rate is 4.50 percent. According to his calculations, the result of the international Fisher relation and its linear approximation are: A) 0.96 and 0.04. B) 0.96 and (-0.04). C) 1.04 and 0.04. D) 1.04 and (-0.04). Your answer: B was correct! Using the international Fisher relation: Exact methodology: (1 + rFC) / (1 + rDC) = (1 + E (iFC)) / (1 + E (iDC)) Linear approximation: rFC – rDC = E (iFC) – E (iDC) By substituting for the international Fisher relation: (1 + 0.076) / (1 + 0.1176) = (1 + 0.045) / (1 + 0.085) 1.076 / 1.1176 ≈ 1.045 / 1.085 0.9628 ≈ 0.9631 By substituting for the linear approximation of the international Fisher relation: 0.076 – 0.1176 ≈ 0.045 – 0.085 - 0.0416 ≈ -0.0400
Second sentence “Based in Paris.” The fund is an Asian Spec Fund based in Paris therefore the DC is Europe.
is anyone else beginning to panic as they get into the later books and realize how much they’re forgetting from the early books?
I have just covered 20% of the portion and have forgotton about 19.5% of it already I wanna postpone L2!!