CFA CFA Level 2 The International Parity Relationship Combined

The International Parity Relationship Combined

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    • Avatar of vincenttvincentt
      Participant
        • CFA Level 3
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        @diya based on what i understand, unbiased predictor of future spot rates means ignoring any other factors that could affect the future currency, the future rate should be exactly like the model you used to calculate it.

        E.g. S * (1+infla_A) / (1 + inflat_B) or S * (1+R_A) / (1 + R_B), etc.

        So, if based on your calculation and your future rate is say (USD/GBP) is 1.55 and the spot rate (when you got to the future) is 1.50.

        USD is overvalued or GBP is undervalued and based on the assumption of the unbiased predictor the rate will move towards 1.55 eventually.

        Correct me if i’m wrong!

      • Avatar of Zee TanZee Tan
        Keymaster
          • CFA Charterholder
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          Given the different relationships that yield a forward discount or premium, that is the unbiased predictor (i.e. best known unbiased estimate) of future spot rates?

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          @Zee I’ll think about it. But how is our expectations unbiased? Considering we can’t trade on it?

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