Another exchange rate

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CFAHouston

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An unanticipated shift to an expansionary monetary policy will NOT lead to?

A) more rapid economic growth, an accelerated inflation rate, and lower real interest rates.

B) an appreciating domestic currency.

C) more expensive domestic products, which reduces exports.

D) reduced foreign investment.
 
2.

An unanticipated shift to a federal government surplus would cause the capital account to move to:

A) surplus and the current account to move to deficit.


B) deficit and the current account to move to deficit.


C) deficit and the current account to move to surplus.


D) surplus and the current account to move to surplus.
 
Yep, I agree with Dermot on #2 that it's A, cuz they have to offset each other (that was a cardinal rule that our seminar instructor stressed this weekend in Edmonton)...but I'm getting caught up in the wording of #1.

It sounds like it's the opposite of what the other thread was stating???...but I'm delirious from 11 hours of sleep in three days and 24 hours of CFA seminar over those three days and a midnight bus ride, so I'm not as coherent as I should be.



Edited 1 time(s). Last edit at Monday, May 1, 2006 at 04:49PM by zimzim78.
 
Nope...it was Aaron Shackleford, from NC. It was frigging EXCELLENT. The guy knows his stuff inside out, has travelled all over the world with CFAI, Schweser, Stalla, etc and could present things so clearly and with such enthusiasm, it was exciting.

I'm totally re-energized to write this exam, even though I spent the three days in class with insane question breakdowns and the nights partying on Whyte Ave. til the wee hours of the morn. There really is no way in hell that I should be alive right now based on my performance this weekend, but it helped me A LOT.

I'm writing the Boston society's mock exam this weekend...should be nuts!
 
I hate these questions?

Unanticipated shift in expansionary monetary policy = lower rates, greater growth, higher inflation, and greater income (spending power)

This one is a little funky because the increased inflation would depreciate the domestic currency...so I think B is clear winner through greater income, greater demand for foreign goods, C & D are only short-term effects that would eventually be affected by a lower rates and depreciating domestic currency. Wish they would put "inital effect" or something like that to give some timeframe perspective.

#2 - Capital and Current must offset so B & D are out. Surplus implies pressure on LR output so inflation is present, but with inflation you have depreciating currency and higher rates.

Which one overrides the effect of the other???? A declining domestic currency would cause lower remittance to foreign investors (there interest return is also eroded) and increased purchasing power of foreign buyers of domestic goods as now their currencies are stronger...I say C...This is all IPP & PPP crapola in disguise with economics chaser.
 
Correct answers are B & C

1) Higher inflation - increase price - reduces demand for domestic products - declining foreign investment - reduce demand for domestic currency - So it will not lead to appreciating domestic currency.

2) larger budget - decrease in aggregate demand - reduction in domestic interest rate - discourages imports - current account towards surplus. So, lower interest rate - encourage domestic investment to leave the country and discourage foreign investors from investing in US. Capital account will move toward deficit.
 
Zim - I thought you were in Chicago.

When I took that class, I went home and straight to my bed. It was so tiring. I can't beleive you went out partying!!!

Those classes were very helpfull. Now I fogot everything he said :(
____________________________________________________________

Drank Red Bull & coffee yesterday. Didn't fall asleep till 2 AM. Woke up at 6 AM to come to work...I'm drying here. No idea how i'm going to concentrate today (already had 3 cups of coffee).

Probably review the easiest session today - corporate finance?



Edited 1 time(s). Last edit at Monday, May 1, 2006 at 05:21PM by CFAHouston.
 
Houston - nah, still in Canada...planning on moving back to Chi this summer though. Yeah, I rode a bus up to Edmonton (6 hour trip) on Thursday and then the seminar started bright and early on Friday. Wasn't planning on going out real late, but things got crazy.

I was kinda hung and super tired, but stepped things up for the classes during the day and actually was one of the most participant all weekend. The instructor was solid - totally made things interesting and has lit a new fire under my a$$ to really stick it to the CFAI in a month. The whole weekend was crazy - but well worth the money, time and damage to my body/immune system. Got on the bus to come home last night at midnight, crashed out hard for 5.5 hours and then came pretty much straight to work at 8am. I've got a serious date with my bed tonight.

Now I can totally see the answer to #1 as being B. My reasoning was a little off for #2 though...gotta hit up econ again.



Edited 1 time(s). Last edit at Monday, May 1, 2006 at 05:30PM by zimzim78.
 
1 - B) Money supply will increase, driving down interest rates and inflation up this will cause a currency depreciation.

2 - C) With less compitition in the bond market (limited gov't participation) there will be lower interest rates. With lower interest rates there will be a capital outflow causing a captial deficit and by definition there will be current account surplus.
 
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