monetary model fx - what is this

question 6, 2005 examination, B what is the monetary model to determine fx rates? I am not sure if I just forgot it or that it is not in 2008 curriculum… thx a lot

Don’t have it on me, nor do I want to look as I haven’t done 2005 yet, BUT if you look on the answer guide it will give you the LOS’s associated with that question…check to see if those LOS’s are still relevant then let us know :slight_smile:

what determines the exchange rate: economic factors or market sentiment? a) describe the monetary model of exchange rates b) explain why it is ddifficult to use the monetary model to forecast exchange rates d) evaluate the forecasting performance of approaches based on the monetary model and news about economic fundamentals 99.9% sure this is not in our 2008 curriculum, right? thx

I don’t think so. I was stumped by this question too.

Did a PDF search of teh 2008 LOS from CFAI and it doesnt state anyting about Monetary Model.

they should remove questions from past examinations that are no longer included in the “on the run” curriculum, unless they have some sort of sexual pleasure watching how we freak out…

Like Quant :slight_smile:

There are total 4 model in 2008 prediciting fx rate. 1) PPP 2) Relative economic strenth. 3) Capital Money Flow 4) Saving Deficiet Model Among those 4, I would think that the closest model would be the PPP (monetary model). Higer inflation translate into lower fx rate.

But none of those are the “Monetary Model”

^I know…that is why I am saying that among those models, the closest thing is the PPP since PPP is basedon inflation, and Fed has somewhat “control” over inflation.

I know, just being a ball buster :slight_smile:

Is the monetary model another name for the the accounting model (current account, financial account, reserve account)? Just thinking about FX and monetary theory, it would seem that fx changes with the money supply, which would presumably be a PPP-like theory. On the other hand, the long term changes in FX are thought to be explained by relative long-term inflation rates. Which I guess is also a PPP formulation, since inflation would describe the number of monetary units required to purchase the same basket of goods.

bigwilly Wrote: ------------------------------------------------------- > I know, just being a ball buster :slight_smile: :)…you can bust all the balls after THE saturday.