PPP and Capital Flows

Will it make currency depreciate or appreciate? and was it really as easy as it looked?

Every freaking question was insane! What a crapiola of an exam man… seriously disgusted.

I had to read few questions couple of times to understand what they were asking and yes I am a native English speaker.

^ I share your frustration man. I can not believe i screwed up so miserably given I studied 5 months for this stupid test. I feel gutted, dejected and every thing in between right now.

Depreciate. Capital Fows were decreasing and Inflation was increasing.

Not me. The CFAI. lol

Yup, definitely agree with ua bender, inflation was projected to increase and foreign receipts were expected to decrease so decrease in value of currency was expected

When you state foreign receipts that is the same as foreign direct investment decreases correct?

FDI as a percentage of GDP was decreasing.

Yes, the table was showing the decreasing projected FDI as a component.

Not as easy as it looked. FDI as a percentage of GDP decreased, that was obvious, however given the increase in GDP, the absolute level of FDI flows increased, and absolute money flows is what drives currencies higher -or lower-.


i hope i answered this correctly…i cannot remember my answer though

Trapped again. Didn’t even see GDP in $ figure.

I’m afraid i cannot agree. Because the next year figure column in the table contained expected economic values. These are expectations but not the matter of fact. Further to have your line of argumentation, i need to point that if GDP grows then the quantity of local currency in circulation (wide money) grows even faster than the GDP, so the proportion of FDI is likely to be less. Then, it causes inflation to increase either. Increasing inflation may be unfriendly for PPP of the country in question resulting in the depreciation of currency. If the table would contain an indication of expected stance of Central Bank (its inflation target), then we might expect a tightening, an increase of interest rates, an increase of speculative capital into the country and then its APPRECIATION. No such info was provided. FDIs react favorably to economic prospects (real growth, not nominal, of GDP).

the only thing i remember from my answer was that both FDI and inflation led to the same conclusion…either app or dep…did i fall into a trap?..thx for any help

was “inconclusive” as option?

So what effect dominates PPP or Cash Flow? Or were they seperate questions?


With regard to PPP, there was a bit of twist in that the interest rate differential completely offset any change in expected inflation. Was that a trap and to be ignored?

I feel like the passing score (MPS) is going to hit an all time low this time - probably 40ish%. I can’t figure head or tail of any question even after having my books open for weeks now and no consensus on AF helps neither!