CFA 18.1
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Questions and Answers

In the context of the foreign exchange market, investment accounts are said to be leveraged if they:

  • borrow and sell foreign currencies.
  • buy currencies on margin.
  • use derivatives. (correct)
  • The difference between Country D's nominal and real exchange rates with Country F is most closely related to:

  • Country D's inflation rate.
  • the ratio of the countries' price levels. (correct)
  • the risk-free interest rates of the two countries.
  • The exchange rate for Japanese yen (JPY) per euro (EUR) changes from 98.00 to 103.00 JPY/EUR. How has the value of the EUR changed relative to the JPY in percentage terms?

  • Appreciated by 4.9%.
  • Appreciated by 5.1%. (correct)
  • Depreciated by 4.9%.
  • Assuming no changes in the prices of a representative consumption basket in two currency areas over the measurement period, changes in the nominal exchange rate:

    <p>are equal to changes in the real exchange rate.</p> Signup and view all the answers

    At a base period, the CPIs of the countries of Tuolumne (currency is the TOL) and Bodee (currency is the BDE) are both 100, and the exchange rate is 0.90 BDE/TOL. One year later, the exchange rate is 0.75 BDE/TOL, and the CPI has risen to 110 in Tuolumne and 105 in Bodee. The real exchange rate is closest to:

    <p>0.79 BDE/TOL</p> Signup and view all the answers

    Other things equal, a real exchange rate (states as units of domestic currency per unit of foreign currency) will decrease as a result of an increase in the:

    <p>domestic price level.</p> Signup and view all the answers

    If we compare the prices of goods in two countries through time, we can use the price information in concert with the quoted foreign exchange rate to calculate the:

    <p>real exchange rate.</p> Signup and view all the answers

    In the foreign exchange markets, transactions by households and small institutions for tourism, cross-border investment, or speculative trading comprise the:

    <p>retail market.</p> Signup and view all the answers

    Participants in foreign exchange markets that can be characterized as "real money accounts" most likely include:

    <p>insurance companies.</p> Signup and view all the answers

    The exchange rate for Chinese yuan (CNY) per euro (EUR) changed from CNY/EUR 8.1588 to CNY/EUR 8.3378 over a 3-month period. It is most accurate to state that the:

    <p>EUR has appreciated 2.19% relative to the CNY.</p> Signup and view all the answers

    An exchange rate at which two parties agree to trade a specific amount of one currency for another a year from today is best described as a:

    <p>forward exchange rate.</p> Signup and view all the answers

    Which of the following would least likely be a participant in the forward market?

    <p>Long-term investors.</p> Signup and view all the answers

    In the currency market, traders quote the:

    <p>nominal exchange rate.</p> Signup and view all the answers

    If the exchange rate value of the CAD goes from USD 0.60 to USD 0.80, then the CAD:

    <p>appreciated and Canadians will find US goods cheaper.</p> Signup and view all the answers

    The sell side of the foreign exchange markets primarily consists of:

    <p>multinational banks that deal in currencies.</p> Signup and view all the answers

    The exchange rate for Australian dollars per British pound (AUD/GBP) was 1.4800 five years ago and is 1.6300 today. The percent change in the Australian dollar relative to the British pound is closest to:

    <p>depreciation of 9.2%.</p> Signup and view all the answers

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