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Basic Question 12 of 27
Suppose that the one year interest rate is 5% in Germany. The expected inflation rate is 3%. If the international Fisher effect holds, what is the real interest rate in Germany?
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Edward Liu
Learning Outcome Statements
explain international parity relations (covered and uncovered interest rate parity, forward rate parity, purchasing power parity, and the international Fisher effect);
describe relations among the international parity conditions;
evaluate the use of the current spot rate, the forward rate, purchasing power parity, and uncovered interest parity to forecast future spot exchange rates;
explain approaches to assessing the long-run fair value of an exchange rate;
CFA® 2025 Level II Curriculum, Volume 1, Module 8.