- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 7. Capital Flows and the FX Market
- Subject 2. Exchange Rate Regimes
CFA Practice Question
According to the J-curve effect, when the exchange value of a country's currency depreciates, the country's trade balance ______
B. first moves toward surplus, then later toward deficit.
C. moves into surplus and stays there.
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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