There is a section on the balance of payment approach to determine the exchange rate as well as a section on the asset market approach. I was curious what type of info you were supposed to get from these sections so I checked the LOS and they’re not even mentioned. Another post said to try and make sure you can do everything in the LOS, but this isn’t even there. I’m talking about the end of reading 19, foreign exchange parity relations.
I don’t think there was a BOP LOS last year either, but that didn’t stop them from throwing 2 questions on the test (1/3rd of econ section).
I am on the international asset pricing section of PM (Reading 28) now and so I went back and reviewed the parity relationships from econ. While I was there I saw the balance of payments and asset market approach info again. When I checked the LOS from last year on this section they go pretty much in line with this year, except the last one this year is “Discuss the foreign exchange expectation relation between the forward exchange rate and the expected exchange rate.” Last year had an expanded version of this LOS, but also includes 6 additional LOS asking to 1. calculate the forward exchange rate, given… 2. discuss the implication of the parity relationships combined 3. explain the roles of absolute purchasing power parity… 4. discuss the elements of balance of payments and their role in exchange rate determinations 5. discuss the asset market approach to pricing exchange rate expectations. 6. Calculate the short-term and long-run exchange rate effects of a sudden and unexpected increase in the money supply Now all of the info pertaining to those LOS are still in reading, even though the info pertaining to the LOS from this year stop at page 592 of the CFAI text. Since none of the info past page 592 is mentioned in this year’s LOS, do you think that it was supposed to be marked optional as the LOS pertaining to the reading has been removed?
Also, is the info at the end of that chapter on balance of payment approach and asset market approach covered in Schweser and Stalla notes?
asset market approach was not there in Schweser - but there are a bunch of old questions from previous year’s Qbank still lurking around on the topic.
As you read on the CFAI text, you will find out a lot of sections that aren’t exactly described in the LOS (and as a result, not mention in the Schweser’s notes), but are covered by the practice problems regardless. (Asset market approach being one example; later on in FI, you will see things like capped floating notes or CMO with trenches with floating/inverse floating rate.) My opinion is that anything that are in CFAI text and are covered by their practice problems, it’s considered fair game on the exam. YMMV.