- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 7. Capital Flows and the FX Market
- Subject 1. The Foreign Exchange Market
CFA Practice Question
Which one(s) is (are) true?
II. An increase in the real exchange rate implies a reduction in the relative purchasing power of the domestic currency.
I. The real exchange rate can be defined as the nominal exchange rate that takes the inflation differentials among countries into account.
II. An increase in the real exchange rate implies a reduction in the relative purchasing power of the domestic currency.
Correct Answer: Both statements are true.
The real exchange rate measures the relative purchasing power of the currencies.
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