CFA Practice Question

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CFA Practice Question

If $:Currency 1 = 4.00 and $:Currency 2 = 3.50, then ______

A. Currency 2:Currency 1 = 1.14
B. Currency 2:Currency 1 = 1
C. Currency 2:Currency 1 = 0.875
Correct Answer: A

Currency 2:Currency 1 = (4.00) / (3.5) = 1.14

User Contributed Comments 14

User Comment
safash explain the concept
vatsal92 $/C1 divided by $/C2. Reversing, $/C1 x C2/S = 4 x 0.29
davcer safash, you need 4 units of currency 1 to get 1 usd, and only 3.5 units of currency 2 to get 1 usd, so you need more than one unit of currency 1 to get a unit of currency 2, in other words currency 1 is worth .25 usd while currency 2 is worth .286 usd
leon121 or one way of looking at it is through ratios...then solve for the respective currencies........
ars2011 C1=0.250 USD (Taking Reciprocal)
C2=0.285714 USD (Taking Reciprocal)
So now a Quote C2:C1 ,1 C2 = "x" times c1 which is 1.14
nfressell2 Is this not the opposite of how they did it on the last question? A:B was A/B now 2:1 is 1/2? Can anyone explain
degosan9 I did the same thing as your nfressel. If you read closer, first pair is ($:C1) and second is ($:C2) so its a cross rate not direct prices of C1 and C2
choas69 i got confused here abit but then i saw that Currency 2 is stronger and hence it will give more than 1
khalifa92 given that currency 1 is base
mtsimone To keep it as simple as possible always try to put the algebra in a cancellable form for the currency you want to get rid of. In this case flipping the formula so the USD is in one numerator and USD is in the other denominator cancels the USDs. If I try to start thinking about division it gets confusing, so I just flip to a cancellable form. That said, I'm admittedly not the sharpest candidate.
davidt876 mtsimone - that method is quick but it can get confusing for problems like question 8, where you have to know which of the bid/ask prices to pick in each pair and then invert and multiply
b25331 problem: C1/USD=4 C2/USD=3.5 , so
next; C1/USD USD/C2 * 1/X (reciprocal)
then; USD can now be cancelled out (see mtsimone's explaination above)
result: C1/C2 = 4/3,5 = 1.1429
Ewan2015 This makes no sense when applying the logic from Q1 in Q1 a:b=a/b in this one a:b=b/a
ashish100 Read the damn notes instead of these wannabe geniuses. AN did a great job explaining this.
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