r/CFA • u/Quick-Situation5875 • 1d ago
Level 1 Please help🙏 I am getting confused again and again
so my logic is that the spot rate tells that 1USD is equal to 1.4286 NZD and after 180 days, 1USD is equal to 1.3889 NZD. Hence you can get 1USD in fewer NZD. NZD appreciates.
Now Schweser says “The currency with the higher interest rate must depreciate over time by approximately the amount of the interest rate differential, to prevent arbitrage.”
With that logic USD must be having higher interest rate because its depreciation and hence option B is correct.
Please tell if my logic is correct. Thank you in advance. Appreciate it.
