CFA Practice Question

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CFA Practice Question

According to the J-curve effect, when the exchange value of a country's currency depreciates, the country's trade balance ______

A. first moves toward deficit, then later toward surplus.
B. first moves toward surplus, then later toward deficit.
C. moves into surplus and stays there.
Correct Answer: A

The J-curve effect shows that currency devaluation or depreciation will initially make the trade balance worse before making it better.

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