- 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
Which of the following will exert upward pressure on a high yield currency's value?
B. a sustained narrowing relative inflation expectations.
C. an increasing risk premium to hold the high-yield currency's assets.
A. a sustained narrowing nominal yield spread.
B. a sustained narrowing relative inflation expectations.
C. an increasing risk premium to hold the high-yield currency's assets.
Correct Answer: B
User Contributed Comments 2
| User | Comment |
|---|---|
| bablig | why not a? can anybody explain |
| rlabog | the real FX rate (q) = average q + nominal yield spread - inflation spread - risk premium spread if the spread is narrow, the value is small. If you want to exert upward pressure on q, you should have a large average q, large nominal yield spread, small inflation spread, small risk premium spread |