Which Factors Influence Currency Appreciation: CFA® Level 1 Exam Answer

Factors Influencing Currency Appreciation: CFA® Level 1 Exam

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Question

Which of the following factors will cause country A's currency to appreciate relative to the currency of country B, all else equal?

I. A has higher income growth.

II. A has higher inflation.

III. B has higher real interest rate.

Answers

Explanations

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A. B. C. D. E. F. G.

B

A country's currency will appreciate relative to those of its trading partners if it has lower income growth (which will cause the increase in imports to lag behind the increase in exports), has a lower inflation rate or offers higher real interest rates.

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