- 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 concept, which of the following is false? The effects of a currency depreciation on the balance of payments are ______
A. transmitted primarily via the income-adjusted mechanism.
B. likely to be adverse or negative in the short run.
C. in the long run positive, given favorable elasticity conditions.
Explanation: The J-curve effect shows that currency devaluation or depreciation will initially make the trade balance worse before making it better.
User Contributed Comments 5
| User | Comment |
|---|---|
| langy | help!? |
| alexchav | So B should be correct, right? In the short run, devaluation deteriorates the trade balance! |
| Sheeb | That was my thinking too. B is a true statement but the question asks for a false one. |
| sevywonder | I've gotten this one as it's been recycled, but there will definitely be questions like this on the test. Read the question, then read it again... |
| sumeetb | @Sevywonder can you please provide an explanation? |