least likely to affect currency appreciation

CFA Level III
#21

agree with ^

#22

Am i the only mistaking here? I chose inflation. If its stable it has no influence. Interest rate cut can make currency go both ways according to Schweser

#23

interest rate.

#24

can someone tell why it shouldnt be inflation?

#25

because inflation was unchanged

#26

inflation is stable at 3%. In a growing economy, stable inflation will promote economic growth. If you have strong economic growth in an economy then you’ll see your currency appreciate (since it was a developing economy). The only possible answer is interest rates.

#27

I chose inflation too

#28

Yep, a stable inflation is good for long-term growth.

#29

infalation

#30

interest rates. they dropped. inflation was sustained at same rate.

#31

i spent the most time on this one … left it to come back to at the end of the exam … i knew it was interest rate 'cause the other two didnt make sense … though, justifying it in my head took a lot of time … eventually went with interest rate…

#32

CFAI gave us four methods for predicting exchange rates. PPP; Relative Economic Strength; Savings Investment Balances and Capital Flows. My rationale was under the latter Reading 23 explicitly states that the exchange rate and interest rate can have a unexpected relationship if rates fall and the equity market booms and FDI and equity investment are drawn in boosting the financial account and thus exchange rate. It did say ‘least likely’. Whose to say that inflation was constant in other countries? If it wasn’t i.e. was falling the exchange rate could well depreciate; If inflation is increasing elsewhere the exchange rate would appreciate. This is under PPP, but remember PPP is a long run prediction.

#33

Exactly. If interest down->exchange rate up OR down -> then its not least likely. I understand that stable inflation is good, but 3,3% is also higher than whats target in many countries->depreciate

#34

the trick here was the fact that we were talking about real interest rates. When real interest rates go down, currency depreciates…

#35

akibe Wrote: ------------------------------------------------------- > the trick here was the fact that we were talking > about real interest rates. When real interest > rates go down, currency depreciates… Not necesarily. If investors have long-term horizon and start investing in the countries the currency appreciates. Right?

#36

itstoohot Wrote: ------------------------------------------------------- > interest rates > > developed countries: interest cut–> currency > appreciates > emerging countries: interest cut–> currency > depreciates same logic

#37

interest rate cut => can go either way (less attractive to deposit, but also more attractive to borrow) inflation flat => it’s at least not going down, so with interest rates even lower now, a flat inflation rate can lead to a depreciation of currency can’t quote for text book, of course, just my logic