- CFA Exams
- 2023 Level II
- Topic 2. Economics
- Learning Module 8. Currency Exchange Rates: Understanding Equilibrium Value
- Subject 8. Currency Crises
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Subject 8. Currency Crises PDF Download
The following stylized facts were found by an IMF study:
- In the period leading up to a crisis, the real exchange rate is substantially higher than its mean level during tranquil periods.
- The trade balance does not signal impending currency crisis.
- Foreign exchange reserves tend to decline precipitously as the crisis approaches.
- On average, the terms of trade deteriorate somewhat leading up to a crisis.
- Inflation tends to be significantly higher in pre-crisis periods.
- The ratio of M2 to bank reserves tend to rise in the 24-month period leading up to a crisis, then plummets sharply in the months immediately following a crisis.
- Broad money growth in nominal and real terms tends to rise sharply in the two years leading up to a currency crisis, peaking around 18 months before a crisis hit.
- Nominal private credit growth tends to rise sharply in the period leading up to a crisis.
- Currency crises are often preceded by a boom-bust cycle in financial asset prices.
- Real economic activity does not display any distinctive pattern ahead of a crisis but falls sharply in the aftermath of a crisis.
Learning Outcome Statementsdescribe warning signs of a currency crisis.
CFA® 2023 Level II Curriculum, Volume 1, Module 8
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