- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 8. Currency Exchange Rates: Understanding Equilibrium Value
- Subject 3. A Long-Term Framework for Exchange Rates
CFA Practice Question
Which statement(s) is (are) false regarding relative PPP?
II. It states that exchange rates between home and foreign currencies adjust to reflect changes in price levels in each country.
III. It implies that price levels should be equal worldwide.
I. It implies that the real return on an asset is identical for investors from any country.
II. It states that exchange rates between home and foreign currencies adjust to reflect changes in price levels in each country.
III. It implies that price levels should be equal worldwide.
Correct Answer: III
Absolute PPP implies price levels should be equal worldwide.
User Contributed Comments 1
| User | Comment |
|---|---|
| quanttrader | absolute ppp: price levels should be equal worldwide relative ppp: exchange rates adjust to difference in coutnries' inflation |