- 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
Assume that in 1996 the USD/AUD (Australian Dollar) exchange rate was USD0.72/AUD. The consumer price index in the U.S. rose from 135 to 192 from 1996 to 2012 while the Australian price index rose from 114 to 170 in the same period. If PPP holds, the 2012 USD/AUD exchange rate equals:
B. 0.75.
C. 0.79
A. 0.69.
B. 0.75.
C. 0.79
Correct Answer: A
0.72 x (192/135)/(170/114) = 0.69.
User Contributed Comments 1
| User | Comment |
|---|---|
| charomano | Higher inflation for AUD, so it must depreciate against the dollar. |