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Basic Question 9 of 27
Assume that in 1996 the USD/AUD (Australian Dollar) exchange rate was USD0.72/AUD. The consumer price index in the U.S. rose from 135 to 192 from 1996 to 2012 while the Australian price index rose from 114 to 170 in the same period. If PPP holds, the 2012 USD/AUD exchange rate equals:
B. 0.75.
C. 0.79
A. 0.69.
B. 0.75.
C. 0.79
User Contributed Comments 1
| User | Comment |
|---|---|
| charomano | Higher inflation for AUD, so it must depreciate against the dollar. |
I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
Barnes
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.