CFA Level I · CFA Level I Exam · Capital Flows and the FX Market
A dealer quotes the EUR/USD exchange rate as 1.0800. This quote is best interpreted as:
A EUR/USD quote of 1.0800 means one euro (the base currency) costs 1.0800 US dollars (the price currency). The base currency is always one unit, and the price currency states how many units are needed to buy it.
- A1.0800 euros per 1 US dollar
- B1.0800 US dollars per 1 euroCorrect
- C1.0800 euros per 1 euro-denominated bond
Explanation
In the A/B convention, A is the base currency and B the price currency. EUR/USD of 1.0800 means one euro costs 1.0800 US dollars. The first option inverts the quote.
Did you get it right without looking?
One question tells you little. A timed set on Capital Flows and the FX Market shows your real accuracy, how long you take and where you lose marks.
More Capital Flows and the FX Market questions
- An economy has a government budget deficit of 4% of GDP, private saving of 22% of GDP, and private investment of 20% of GDP. Using the savin…
- The spot USD/CAD rate is 1.3500 (CAD per USD). The 1-year interest rate is 2.0% in USD and 4.0% in CAD. Using covered interest rate parity w…
- In the foreign exchange market, the largest share of daily trading volume is most likely accounted for by:
- Which of the following is most likely to be classified as foreign direct investment rather than foreign portfolio investment?
- The spot GBP/USD rate is 1.2500 and the spot EUR/USD rate is 1.0000. A dealer quotes GBP/EUR at 1.2700. An arbitrageur starting with GBP 1,0…
- Covered interest rate parity is enforced mainly by which of the following market forces?