CFA Practice Question

There are 341 practice questions for this study session.

CFA Practice Question

The quantity of real money that people plan to hold depends on these factors:

I. The price level
II. The nominal interest rate
IV. Financial innovation
A. II, III and IV
B. I and II
C. All of them
Explanation: All of the 4 factors affect the quantity of nominal money people hold. However, the price level does not affect the real money people hold.

User Contributed Comments 12

User Comment
pochuevalex What is financial innvation?? Can someone explian?
lavalyn Financial innovation is the development of new financial instruments. Credit cards, for example, reduce money held, since people hold demand lines of credit easily. Money market accounts reduce demand deposits.
8thlegend Why wouldn't people hold onto money if the price level is too high?
smarkheim "If the price of a product increases (decreases), then at any interest rate, the quantity of money demanded increases (decreases)."

I believe there is a mistake. Should be C.
charlie smarkheim: REAL money vs. money. note the difference.
endurance Nominal money = real money * price level

The price level affects nominal money but not real money (which is a constant).

If the price increases and you are increasing your money holding, the real money holding is constant - meaning that the quantity of real money is not affected
ColonelCFA Essentially you can think of nominal many as actual dollar amounts while real money is the purchasing power of those dollars? So an increase in price doesn't affect the amount you want to purchase (real money) but the amount of dollars (nominal money) it takes to maintain that real money or purchasing power amount.

gill15 I would`ve chose II and III if available. I would not gave considered financial innovation.
davcer Real!! Tricky one
farhan92 think of Apple Pay in terms of fin innovation - you can pay using your phone so no need to hold cash
Lambo83 Real Money Balances is M/P = Y. Price affects real money too.
dbalakos oo damn it said REAL money
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