- CFA Exams
- 2023 Level II
- Topic 2. Economics
- Learning Module 8. Currency Exchange Rates: Understanding Equilibrium Value
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Learning Outcome Statements PDF Download
|1. Foreign Exchange Spot Markets|
calculate and interpret the bid-ask spread on a spot or forward foreign currency quotation and describe the factors that affect the bid-offer spread;
identify a triangular arbitrage opportunity and calculate its profit, given the bid-offer quotations for three currencies;
|2. Foreign Exchange Forward Markets|
explain spot and forward rates and calculate the forward premium/discount for a given currency;
calculate the mark-to-market value of a forward contract;
|3. A Long-Term Framework for Exchange Rates|
explain international parity relations (covered and uncovered interest rate parity, forward rate parity, purchasing power parity, and the international Fisher effect);
describe relations among the international parity conditions;
evaluate the use of the current spot rate, the forward rate, purchasing power parity, and uncovered interest parity to forecast future spot exchange rates;
explain approaches to assessing the long-run fair value of an exchange rate;
|4. The Carry Trade|
describe the carry trade and its relation to uncovered interest rate parity and calculate the profit from a carry trade;
|5. The Impact of Balance of Payments Flows|
explain how flows in the balance of payment accounts affect currency exchange rates;
|6. Monetary and Fiscal Policies|
explain the potential effects of monetary and fiscal policy on exchange rates;
|7. Exchange Rate Management: Intervention and Controls|
describe objectives of central bank or government intervention and capital controls and describe the effectiveness of intervention and capital controls;
|8. Currency Crises|
describe warning signs of a currency crisis.
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