CIMA Exam CIMAPRO19-P03-1 Topic 3 Question 85 Discussion

Actual exam question for CIMA's CIMAPRO19-P03-1 exam

Question #: 85
Topic #: 3

[All CIMAPRO19-P03-1 Questions]

The long-term prospects for interest rates in the UK and the USA are 2% and 6% per annum respectively.

The GBP/USD spot rate is currently GBP/USD1.71.

Usinginterestrateparitytheory, what GBP/USD spot rate would you expect to see insix months' time?

AGBP/USD = 1.74

BGBP/USD = 1.78

CGBP/USD = 1.65

DGBP/USD = 1.67

Show Suggested Answer

Suggested Answer: B, C, D

by Kenda at Jan 15, 2025, 02:21 AM

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Cheryll

1 days ago

I bet the correct answer is C) GBP/USD = 1.65. That's the only one that seems to match the expected depreciation of the GBP based on the interest rate differential.

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Hmm, let me think this through. The UK rate is 2% and the US rate is 6%, so the interest rate differential is 4%. Using the parity formula, I'd expect the GBP to depreciate against the USD by about 4% over the 6-month period.

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Cherelle

13 days ago

This question is a classic application of interest rate parity theory. The key is to calculate the expected change in the spot rate based on the interest rate differential between the two countries.

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Nelida

17 days ago

So, the answer would be B) GBP/USD = 1.78, right?

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Lorrine

18 days ago

I agree, with the higher interest rate in the USA, the GBP/USD spot rate should go up.

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Rebbecca

20 days ago

I think the GBP/USD spot rate will increase.

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CIMA Exam CIMAPRO19-P03-1 Topic 3 Question 85 Discussion

Contribute your Thoughts:

Cheryll

Denae

Cherelle

Nelida

Lorrine

Rebbecca