Title Economics.pdf ✅

Last Revised: 07/25/2023 1 2024 Level 2 - Economics This document should be used in conjunction with the corresponding learning modules in the 2024 Level 2 CFA® Program curriculum. Some of the graphs, charts, tables, examples, and figures are copyright 2023, CFA Institute. Reproduced and republished with permission from CFA Institute. All rights reserved. Required disclaimer: CFA Institute does not endorse, promote, or warrant accuracy or quality of the products or services offered by MarkMeldrum.com. CFA Institute, CFA®, and Chartered Financial Analyst® are trademarks owned by CFA Institute. © 2533695 Ontario Limited d/b/a MarkMeldrum.com. All rights reserved. Learning Modules Page Currency Exchange Rates: Understanding Equilibrium Value 2 Economic Growth 28 Economics of Regulation 48 Review 55 M.M134813896.
Last Revised: 07/25/2023 2 Currency Exchange Rates: Understanding Equilibrium Value a. calculate and interpret the bid-offer spread on a spot or forward currency quotation and describe the factors that affect the bid-offer spread b. identify a triangular arbitrage opportunity and calculate its profit, given the bid- offer quotations for three currencies c. explain spot and forward rates and calculate the forward premium/discount for a given currency d. calculate the mark-to-market value of a forward contract e. explain international parity conditions (covered and uncovered interest rate parity, forward rate parity, purchasing power parity, and the international Fisher effect) f. describe relations among the international parity conditions g. evaluate the use of the current spot rate, the forward rate, purchasing power parity, and uncovered interest parity to forecast future spot exchange rates h. explain approaches to assessing the long-run fair value of an exchange rate i. describe the carry trade and its relation to uncovered interest rate parity and calculate the profit from a carry trade j. explain how flows in the balance of payment accounts affect currency exchange rates k. explain the potential effects of monetary and fiscal policy on exchange rates l. describe objectives of central bank or government intervention and capital controls and describe the effectiveness of intervention and capital controls m. describe warning signs of a currency crisis M.M134813896.
Last Revised: 07/25/2023 3 Bid-Ask Spread - 2 quoting conventions B.P = base.price or � �# = long ⇒ buy the base by paying the price - buy 1 USD by paying $1.3410 CAD - now own $1 USD - long USD/short CAD short ⇒ sell the base and receive the price - sell 1 USD by receiving $1.3410 CAD - now own - short USD/long CAD - settlement on spot transactions ⇒ T + 2 EUR.USD Interbank Market or ��� ��� # spread 1.0518 bid Dealer offer 1.0519 spread 1.0517 bid Client offer 1.0520 dealer willing to dealer willing to buy EUR for 1.0517 USD sell EUR for 1.0520 client sells EUR client pays 1.0520 USD for 1.0517 USD (hit the bid) for EUR (pays the offer) then sells for 1.0518 e.g./ USD.CAD = 1.3410 (1) ��� ��� = �. ���� base = bottom (1 USD is worth $1.3410) then buys for 1.0519 Page 1 LOS a - calculate - interpret - describe ����� ���� $1.3410 CAD Page 2 LOS a - calculate - interpret - describe USD. M.M134813896.
Last Revised: 07/25/2023 4 ⇒ Spread depends on 1) Currency pair involved/ EUR.USD or/ ��� ��� & USD.JPY ��� ��� & GBP.USD ��� ��� & crosspairs CHF.MXN or/ ��� ��� & MXN.JPY ��� ��� & 2) Time of Day/ Tokyo 09:00 13:00 17:00 21:00 01:00 05:00 09:00 Day+1 Day+1 Day+1 London 00:00 04:00 08:00 12:00 16:00 20:00 24:00 New York 19:00 23:00 03:00 07:00 11:00 15:00 19:00 Day-1 Day-1 3. Volatility – esp. right in front of major data releases + 4) Who the broker dealer is - some will pass on interbank bids/asks but charge 1 pip commission - some will spread the interbank bid/ask but charge no commission very deep & liquid pairs - very tight spreads wider spreads 8:30am NY 8:29 – 50 sec. 1 pip 8:30.45 20 pips Page 3 LOS a - calculate - interpret - describe Page 4 LOS a - calculate - interpret - describe 3 big markets - Japan - Europe - N. America M.M134813896.