- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 8. Currency Exchange Rates: Understanding Equilibrium Value
- Subject 5. The Impact of Balance of Payments Flows
CFA Practice Question
Real exchange rate movements are determined by a few factors: the long run equilibrium level, nominal interest rate spread, expected inflation differential and risk premium. Which one(s) is (are) directly observable?
Correct Answer: Nominal interest rate spread.
User Contributed Comments 2
| User | Comment |
|---|---|
| danubian | Expected inflation differential as well, no? There are inflation-indexed bonds and swaps which serve as proxies for inflation expectations |
| davidt876 | the fact that you can only observe it through proxies would mean that it's indirectly observable |