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CFA L2 > Economics > Flashcards

Economics Flashcards

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CFA flashcards
1
Q

What is forward premium and forward discount

A
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2
Q

Rule for fx conversion

A
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3
Q

Formula for MtM value of forward currency contract

A
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4
Q

When does covered interest rate holds? What is the formula?

A

When forward premium or discounts offsets differences in interest rates

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5
Q

When does covered interest rate holds? What is the formula?

A

When forward premium or discounts offsets differences in interest rates

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6
Q

Uncovered interest rate parity formula and key assumption

A

Investor is risk neutral, demands no additional return for exchange rate risk when investing in another country with .

% E = Ra - Rb

A currency with a higher interest rate should depreciate relative to a currency with lower interest rate

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7
Q

Formulas for domestic and international fisher relation

A

Fisher relation
Rnominal = Rreal + inflation

Intl Fisher relation
RnominalA - RnominalB = inflation A - inflation B

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8
Q

Definitions of PPP, absolute, relative PPP and Ex-ante version of PPP

A

PPP law that identical goods should have the same price in all locations

Absolute PPP - law of one price is correct in average (basket of goods, ex CPI)

Relative PPP - changes exchange rate reflects inflation differential. It holds approximately in the long run for the relation on exchange rates and inflation.

Ex-ante PPP - equals relative PPP using expected instead of actual inflation

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9
Q

Effects on FX from monetary and fiscal policies in countries with high and low capital mobility

A
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10
Q

Effects on currency from a higher interest rate in the uncovered interest rate parity and mundell Fleming model.

A
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11
Q

What is potential GDP?

A
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12
Q

How to measure growth

A

According to cobb douglas production function

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13
Q
A
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14
Q

Define 3 growth theories

A
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15
Q

When is regulation needed?

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16
Q

What is prudential supervision?

A
17
Q

Difference btw self-regulatory bodies (SRB) and self regulating organizations (SRO)

A
18
Q

What is regulatory capture and regulatory arbitrage?

A
19
Q

What are the 3 types of regulations?

A
20
Q

What is carry trade and risk associated with

A

Return = interest on investment - funding cost - currency depreciation

Uncovered interest parity must not hold.
Investment of negative skewness and exces kurtosis (fat tails)

21
Q

Current account deficits lead to depreciation of domestic currency via the following mechanisms (current acc influences):

A

Flow/supply mechanism - import and exports

Portfolio balance mechanism - when investor countries decide to rebalance their investment portfolios

Debt sustainability mechanism - capital account surplus to compensate current account deficit may lead to an unsustainable level of debt

CFA L2 (7 decks)

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