- CFA Exams
- 2021 CFA Level I Exam
- Study Session 5. Economics (2)
- Reading 18. Currency Exchange Rates
- Subject 6. Exchange Rates, International Trade, and Capital Flows
CFA Practice Question
Assume the Canadian demand elasticity for imports equals 1.2 while the foreign demand elasticity for Canadian exports equals 1.8. Responding to a trade deficit, suppose the Canadian dollar depreciates by 10 percent. For Canada, the depreciation would lead to a(n) ______
B. improving trade balance - a smaller deficit
C. unchanged trade balance
A. worsening trade balance - a larger deficit
B. improving trade balance - a smaller deficit
C. unchanged trade balance
Correct Answer: B
This is because the both demands are elastic.
User Contributed Comments 2
User | Comment |
---|---|
johntan1979 | Ex + Em > 1 (unit elasticity) |
FozzeyBear | johntan1979 you make me very angry |