# Hperinflationary Economy

Which of the following best describes the situation in a hyperinflationary economy? Purchasing power of the foreign currency will: A) quickly deteriorate and the foreign currency will be rapidly depreciating against the reporting currency. B) quickly deteriorate and the foreign currency will be rapidly appreciating against the reporting currency. C) dramatically appreciate and the foreign currency will be rapidly appreciating against the reporting currency. D) dramatically appreciate and the foreign currency will be rapidly depreciating against the reporting currency.

a?

d

a

A

I was thinking of this question in terms of domestic scenario where B would be the appropriate choice???

10 LC bought 1 burger during inflation 20LC buys the same (PP decreases) 1\$ = 10FC now 1\$ = 20FC (FC is depreciating) so A. FC = Foreign Currency.

Wait, I thought that if the local country experiences inflation then the local currency has to depreciate. Which would mean that foreign would appreciate. What did I get wrong?

The confusion or the trick in the question is wehther hyperinflation economy is foreign or domestic?? If the Hyperinflation is in Local Currency => LC depreciates and reporting currency appreciates == which i guess should be with option B and vice versa with Option D.

i wanted to know if 25% inflation is hyperinflationary (3 yrs continuosly) or is it 25.1 or is it 26%.what about 24.9? 25.9? i am worried CFAI may want to play tricks and test the boundary conditions with this . so whats the magic number? thanks

I take C. I am from Zimbahwe

the question is very unclear because it’s taken out of the context. i assume there was a foreign subsidiary in hyperinflationary environment but we were not given that info.

This question was stand alone from Qbank…and I also felt that there should have been more info to gain clarity as what is being asked.

Weird question. I still can’t decide from whose perspective to solve this problem from.

that was a good question and I think we will be given the context on the actual exam.

The question Id is 9008 in q bank