- CFA Exams
- CFA Level I Exam
- Study Session 4. Economics
- Reading 10. Currency Exchange Rates: Understanding Equilibrium Value
- Subject 6. Monetary and Fiscal Policies
CFA Practice Question
In the Mundell-Fleming model, an expansionary monetary policy:
A. will give rise to an appreciation of the domestic currency.
B. will give rise to a depreciation of the domestic currency.
C. has an ambiguous impact on exchange rate.
Explanation: It will reduce interest rates and lead to capital outflows.
User Contributed Comments 4
| User | Comment |
|---|---|
| jpowers | I thought Mundell-Fleming had to be accompanied by the opposite fiscal policy in order for it the have a definitive effect on currency values? |
| rleewilson | jpowers you are correct IMO. EMP is ambiguous when there is EFP and depreciates when there is RFP under high capital mobility. This question has insufficient data to be able to answer it! |
| sunday128 | I second rleewilson |
| Mheaton37 | third |