- CFA Exams
- 2025 Level II
- Topic 2. Economics
- Learning Module 8. Currency Exchange Rates: Understanding Equilibrium Value
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Learning Outcome Statements PDF Download
| 1. Foreign Exchange Spot Markets calculate and interpret the bid-ask spread on a spot or forward foreign currency quotation and describe the factors that affect the bid-offer spread; identify a triangular arbitrage opportunity and calculate its profit, given the bid-offer quotations for three currencies; | |
| 2. Foreign Exchange Forward Markets explain spot and forward rates and calculate the forward premium/discount for a given currency; calculate the mark-to-market value of a forward contract; | |
| 3. A Long-Term Framework for Exchange Rates 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; | |
| 4. The Carry Trade describe the carry trade and its relation to uncovered interest rate parity and calculate the profit from a carry trade; | |
| 5. The Impact of Balance of Payments Flows explain how flows in the balance of payment accounts affect currency exchange rates; | |
| 6. Monetary and Fiscal Policies explain the potential effects of monetary and fiscal policy on exchange rates; | |
| 7. Exchange Rate Management: Intervention and Controls describe objectives of central bank or government intervention and capital controls and describe the effectiveness of intervention and capital controls; | |
| 8. Currency Crises describe warning signs of a currency crisis. |
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