BSAS Practice exam

from the afternoon session, question 12:

If the inflation raite in the US at the end of 2011 was 3.5%, using relative PPP, the approximate change in China’s (4.1% inflation) exchange rate is closest to:

A. 0.6%

B. 0.2%

C. -0.6%

according to answer key, the correct answer is A

the way i understand it, a higher relative inflation will cause depreciation, which means the chinese x-rate would decrease. my answer is C. am i wrong?

also, anyone know where i can find BSAS errata?

I haven’t seen or attempted the BSAS practice exam but I would make sure to see how “China’s Exchange Rate” spot is quoted. If the exchange rate quote is given in the form CHY/USD (or equivalently USD:CHY), then a depreciation of CHY will cause the CHY/USD quote to INCREASE. i.e. each USD fetches more CHY. Does that make sense?

yeah, thought this was a standalone. in fact, it refers to the vignette where the quote is CHY/USD. thanks! an easy one got away! can’t be too careful come exam day.

I know there are definitely some wrong formulas on the BSAS site…

Sat for it yday and Im waiting on the errata. Anyone know when the errata is out?

[original post removed]

Turns out I did the mock and also found -0.6% was the answer, it’s true the quote is USDCHY, but the vignette reads “approximate change in China’s exchange rate”, not USD… Since China’s inflation is higher than that of the US, China’s exchange rate should fall… If anyone has a clue on this? Thanks!!