Uncovered interest rate parity


if anyone has some time over, why cant I use the formula for uncovered interest rate parity for Reading 13, Example 4, question 7 in the CFA curriculum?

The answer says: If uncovered parity holds, the expected spot is equal to forward rate…calculated with the covered parity formula.

why cant I get the same result with the uncovered formula?


There is no covered interest rate parity formula, nor an uncovered interest rate formula.

There is simply an interest rate parity formula:

(PC/BC)Future = (PC/BC)Spot × (1 + rPC) / (1 + rBC)

“Covered” or “uncovered” describes whether or not, respectively, you have a futures / forward contract to enforce the formula, not different formulae.

I see, thanks!

You’re welcome.

Had pretty much the same question…I understand that in this case the expected spot rate will be equal to the one year forward rate, however if uncovered interest rate parity holds, why can’t we estimate the future spot rate via the interest rate differential of the two countries? via Delta S = Rpc - Rbc ?