CFA Level I · CFA Level I Exam · International Trade
A country receives large, sustained foreign capital inflows into its financial markets. All else equal, the effect on its currency and trade balance is most likely:
Large sustained capital inflows most likely cause currency appreciation and a wider trade deficit. Foreign investors buy the domestic currency to purchase assets, pushing its value up. The stronger currency makes exports less competitive and imports cheaper, which widens the trade deficit.
- Acurrency appreciation and a wider trade deficitCorrect
- Bcurrency depreciation and a wider trade deficit
- Ccurrency appreciation and a narrower trade deficit
Explanation
Inflows raise demand for the domestic currency, causing appreciation. A stronger currency makes exports costlier and imports cheaper, widening the trade deficit. Depreciation would be inconsistent with rising demand for the currency.
Did you get it right without looking?
One question tells you little. A timed set on International Trade shows your real accuracy, how long you take and where you lose marks.
More International Trade questions
- A country's current account deficit is 4% of GDP and its capital account balance is negligible. Holding other things constant, the financial…
- A government wants to protect a domestic industry from foreign competition while collecting revenue from the protection. Which of the follow…
- A group of countries removes tariffs on trade among themselves but each member keeps its own separate tariff schedule on imports from non-me…
- A small country imports steel at a world price of 600 per tonne. It imposes a 10% tariff. Domestic consumption at the tariff-inclusive price…
- Which feature most likely distinguishes an economic and monetary union from a common market?
- A government imposes temporary tariffs on imports of a developing domestic manufacturing sector, stating that the sector will become globall…