There’s a diagram (Exhibit 4) in Econ reading 12, that shows how spot exchange rates, forward exchange rates and interest rates are related internationally. It’s reproduced in both Schweser & Wiley, so I’m guessing that it’s important.
Does anyone have any tips on how to memorize this chart? A cool mnemonic? This chart has got to be worth 1 point.
Thanks.
Looking at this now, haven’t figured out a good way to memorize the whole thing yet, but I think they will quiz you with a question like “what has to hold in order for the forward exchange rate to be an unbiased predictor of the future spot exchange rate?”
Both covered and uncovered interest parity have to hold.
For what it’s worth, covered interest rate parity always holds.