Page 30 - FINAL CFA I SLIDES JUNE 2019 DAY 6
P. 30
Session Unit 5:
20. Currency Exchange Rates, p156
LOS 20.a: Define an exchange rate and distinguish between nominal and real exchange rates
and spot and forward exchange rates.
Example, p.157: Real exchange rate: At a base period, the CPIs of the U.S. and U.K. are
both 100, and the exchange rate is $1.70/£. Three years later, the exchange rate is $1.60/£,
and the CPI has risen to 110 in the United States and 112 in the U.K. What is the real
exchange rate?
= $1.60/£ × 112/110 = $1.629/£ Meaning?
U.S. goods and services that cost $1.70 at the base period now cost only $1.629 (in real terms)
