- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 8. Currency Exchange Rates: Understanding Equilibrium Value
- Subject 6. Monetary and Fiscal Policies
CFA Practice Question
Which model claims that monetary policy affects the exchange rate primarily through the interest rate sensitivity of capital flows?
B. The Taylor rule.
C. The portfolio balance approach.
A. The Mundell-Fleming Model.
B. The Taylor rule.
C. The portfolio balance approach.
Correct Answer: A
It states that when monetary policy is tightened, the currency will appreciate, and when the monetary policy is eased, the currency will depreciate.
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