Register
23:00
Stop
CFA Level 2 - Portfolio Management - Exchange-Traded Funds: Mechanics and Applications
Intermediate
1/23
Sofia, a currency analyst, is examining the exchange rate between the US dollar (USD) and the Chinese yuan (CNY). The current exchange rate is 1 USD = 6.5 CNY. However, her analysis of interest rate differentials and purchasing power parity suggests that the equilibrium exchange rate should be 1 USD = 6.2 CNY. Assuming Sofia's assessment is accurate, which of the following is most likely to happen?
a.
The exchange rate will remain stable at 1 USD = 6.5 CNY, as the market has already priced in the interest rate differentials and purchasing power parity.
b.
The Chinese yuan will appreciate against the US dollar, moving towards the equilibrium rate of 1 USD = 6.2 CNY.
c.
The US dollar will depreciate against the Chinese yuan, moving away from the equilibrium rate and settling at a new rate of 1 USD = 6.8 CNY.
Intermediate