This is the question I found in Schweser… i was confused who is domestic and who is foreign: Suppose spot exchange rate quote is ZAR 8.385 per euro. One year rate in Euro is 10% and one year rate in South Afraica is 8%. Calculate exact expected spot rate using whatever method.
8.385 * 1,08 / 1,1 = dunno (don’t have my calculator) ? Generally, after having read the entire L1 curriculum last year, I have the strong feeling that CFAI takes the US as domestic and the other currency as foreign. Even better; I think they consider everything outside of the US to be an emerging market!
i agree with mcpass, it doesn’t matter which one is domestic and which one is foreign. expected price of 1 euro in one year is 8.385*1.08/1.1 ZAR. or 1 ZAR = 1.1/(1.08*8.385) euros.
monki, ignore who is domestic and who is foreign. just match the numerator and denominator on both sides of the equation. but to answer your question, the euro is the domestic currency in that quote
as CFAI try to become more international I seem to remember that they slipped in a “Who is the domestic currency question” in December L1 exam last year where domestic was sterling and foreign was usd… might be wrong though it could have been on some prep material.