Sample qn - ambiguous answer - can u help? Relative PPP

CFA Level II
#1

Japan 85.45. 1yr Infl=1.2% Uk. 0.62. Infl=1.6 US. Infl=1.3 According to relative purchase parity, which of the below is accurate? 1) Japan’s will depreciate 2) uk’s will be about the same

#2

perhaps if you better worded your problem and put the details in a more understandable form, then maybe someone can address your concerns. and what is ‘uk’s will be about the same’ ? CFAI or any study guide will never use ‘will be about the same’ to describe something…it’s either the same or not the same.

#3

If Japan has higher inflation rate than US, then Japanese yen should depreciate.

Post the question #, you might get better feedback

Gud luk

#4

Thanks Alan. the question is from one of the samples’

Japan yen/$ 85.45. 1yr Infl=1.2%

Uk.£/$ 0.62. Infl=1.6 US. Infl=1.3 According to relative purchase price parity, which of the below is accurate? 1) Japan’s will depreciate 2) uk’s will be about the same

#5

Thanks Alan. the question is from one of the samples’

Japan yen/$ 85.45. 1yr Infl=1.2%

Uk.£/$ 0.62. Infl=1.6 US. Infl=1.3 According to relative purchase price parity, which of the below is accurate? 1) Japan’s will depreciate 2) uk’s will be about the same

#6

I do vaguely recall seeing “about the same” in the CFA sample. It pertains to the question by OP.

#7

Thanks preppie … This is from one of the samples.Qn# 45.the answer is 2)… I gues there is sthg wrong with the question.

#8

Got you.

  1. Japanese yen should apprieciate, so, the first answer is out.

And if I remember correctly, the third answer is also offbase. So, that leaves UK’s being about the same a better choice than the other two.

#9

Right. I somehow thought Jyen depreciates as it becomes 85.03x …however this means jy appreciates…thanks

#10

I thought that one was weird too. They had a fixed income question on the exam that I believe was screwed up. They gave a weighted average maturity of 243 months which implies seasoning of 117 months but in the question they said it implied seasoning of just 17 months. I figured…OK, typo. Then the sample answer used 17 months in it as well. My default assumptionw as that the typo was on the months, but I suppose it could have been on the WAM as well. Either way…very frustrating.

#11

I am with you on this

#12

Yen expected rate: 85.45 * 1.012 / 1.013 = 85.37 => US$ depreciate, Yen appreciate so answer (1) is wrong UK expected rate: 0.62 * 1.016 / 1.013 = 0.6218 => about the same as 0.62 thus (2) is correct. I know the question is not set in the best manner but out of the 3 questions, (2) is most likely correct since the other two is obviously wrong.