CFA CFA Level 1 Question of the Week – Economics

Question of the Week – Economics

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  • exam_whiz
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    Which of the following statements is/are most likely correct?

    I: The demand for a country’s currency is a downward-sloping function of its exchange rate.
    II: Purchasing power parity refers to the relation between interest rates for two currencies and changes in their exchange rates.
    III: Interest rate parity refers to the relation between countries’ inflation rates and exchange rates of their currencies.

    • Only statement I is correct
    • Both statements II and III are correct
    • All statements are correct
    christine
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    is an answer incoming…?

    All these questions serve to remind me how much I’ve forgotten… 🙁

    exam_whiz
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    There certainly is a lot of material on the exam to remember!

    Correct Answer: A

    Purchasing power parity refers to the relation between differences in countries’ inflation rates and changes in exchange rates of their currencies. Interest rate parity refers to the relation between differences in interest rates for two currencies and changes in their exchange rates. Thus, both statements II and III are incorrect.

    ensenmason
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    If statements I & II are correct, wouldn’t it be B?

    exam_whiz
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    Statement I is correct, but statement II is incorrect. Hope this helps!

    shannondaily
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    Boo! I got it wrong. :neutral_face: 

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