Title CFA2020L1QbanksAnswers Economic.pdf ✅

Question #1 of 45 Question ID: 1204462 If the demand curve for a given product is a straight line, this indicates that: A) demand is unit elastic. B) demand is more elastic at higher prices. C) elasticity is constant along the demand curve. Explanation Elasticities will be greater (in absolute value) at higher prices. (Study Session 4, Module 12.1, LOS 12.a) Question #2 of 45 Question ID: 1204459 If a good has elastic demand, a small price decrease will cause: A) a larger increase in quantity demanded. B) no change in the quantity demanded. C) a larger decrease in the quantity demanded. Explanation If a good has elastic demand, a small price decrease will cause a larger increase in the quantity demanded. (Study Session 4, Module 12.1, LOS 12.a) Question #3 of 45 Question ID: 1204479 When household incomes go down and the quantity of a product demanded goes up, the product is: A) a normal good. B) a Veblen good. C) an inferior good. Explanation When household incomes go down and the quantity demanded of a product goes up, the product is an inferior good. Inferior goods include things like bus travel and margarine. (Study Session 4, Module 12.2, LOS 12.c) Question #4 of 45 Question ID: 1204480
Question #1 of 44 Question ID: 1204898 The spot exchange rate for CHF/EUR is 0.8342 and the 1-year forward quotation is −0.353%. The 1-year forward exchange rate for EUR/CHF is closest to: A) 1.2029. B) 1.2022. C) 0.8313. Explanation The forward rate for CHF/EUR is 0.8342 × (1 − 0.00353) = 0.8313. The 1-year forward EUR/CHF exchange rate is 1 / 0.8313 = 1.2030. (Study Session 5, Module 18.2, LOS 18.e) Question #2 of 44 Question ID: 1204916 The tendency for currency depreciation to increase a country's trade de cit in the short run is known as the: A) Marshall-Lerner e ect. B) absorption e ect. C) J-curve e ect. Explanation The J-curve refers to a graph of the e ect of currency depreciation on the trade balance over time. In the short run, a trade de cit may increase because current import and export contracts may be xed in foreign currency units over the near term, and only re ect the exchange rate change over time. In the long run, currency depreciation should decrease a trade de cit. (Study Session 5, Module 18.3, LOS 18.j) Question #3 of 44 Question ID: 1204890 If the exchange rate value of the CAD goes from USD 0.60 to USD 0.80, then the CAD: A) depreciated and Canadians will nd U.S. goods cheaper. B) depreciated and Canadians will nd U.S. goods more expensive. C) appreciated and Canadians will nd U.S. goods cheaper. Explanation The CAD is now more expensive in terms of USD, and thus it has appreciated. Therefore, each CAD yields more USD than before, and Canadians are able to purchase more U.S. goods with each CAD, making U.S. goods relatively cheaper. (Study Session 5, Module 18.1, LOS 18.c)
Question #4 of 44 Question ID: 1204918 Under the absorption approach, which of the following is least likely required to move the balance of payments towards surplus? A) Increased savings relative to domestic investment. B) Decreased domestic expenditure relative to income. C) Su cient elasticities of export and import demand. Explanation Under the elasticities approach the elasticities of demand for exports and imports are the key to moving a country's balance of payments towards surplus. The absorption approach considers capital ows as well as goods ows. Under this approach, domestic expenditure relative to income must decrease to move the balance of trade towards surplus. Decreasing domestic expenditure relative to income is equivalent to increasing domestic savings, and an increase in savings relative to the current level of domestic investment will also move the balance of payments towards surplus under the absorption approach. (Study Session 5, Module 18.3, LOS 18.j) Question #5 of 44 Question ID: 1204878 In the currency market, traders quote the: A) real exchange rate. B) base currency rate. C) nominal exchange rate. Explanation The nominal exchange rate is quite simply the price of one currency relative to another. It is the quote observed in currency markets. (Study Session 5, Module 18.1, LOS 18.a) Question #6 of 44 Question ID: 1204902 The spot CHF/EUR exchange rate is 1.2025. If the 90-day forward quotation is +0.25%, the 90-day forward rate is closest to: A) 1.2050. B) 1.2000. C) 1.2055. Explanation
The 90-day forward CHF/EUR exchange rate is 1.2025 × 1.0025 = 1.20551. The EUR is at a forward premium to the CHF. (Study Session 5, Module 18.2, LOS 18.e) Question #7 of 44 Question ID: 1204880 The di erence between Country D's nominal and real exchange rates with Country F is most closely related to: A) the risk-free interest rates of the two countries. B) the ratio of the two countries’ price levels. C) Country D’s in ation rate. Explanation The di erence between real exchange rates and nominal exchange rates is the relative in ation rates over time between the two countries. Real exchange rate (D/F) = nominal exchange rate (D/F) × . (Study Session 5, Module 18.1, LOS 18.a) Question #8 of 44 Question ID: 1204887 The exchange rate for Chinese yuan (CNY) per euro (EUR) changed from CNY/EUR 8.1588 to CNY/EUR 8.3378 over a 3-month period. It is most accurate to state that the: A) EUR has appreciated 2.15% relative to the CNY. B) CNY has depreciated 2.19% relative to the EUR. C) EUR has appreciated 2.19% relative to the CNY. Explanation The percentage change in the CNY value of one EUR is (8.3378 / 8.1588) – 1 = 0.0219. The EUR has appreciated 2.19% relative to the CNY. This is not the same as CNY depreciating by 2.19% relative to the EUR. The percentage change in the CNY is [(1 / 8.3378) / (1 / 8.1588)] – 1 = –0.0215 = –2.15%. (Study Session 5, Module 18.1, LOS 18.c) Question #9 of 44 Question ID: 1204909 The spot rate for Japanese yen per UK pound is 138.78. If the UK interest rate is 1.75% and the Japanese interest rate is 1.25%, the 6-month no-arbitrage forward rate is closest to: A) 138.10 JPY/GBP. B) 138.44 JPY/GBP. CPIF CPID