You’re on a roll
Create a free account to save your CFA progress, track your accuracy by topic, and pick up right where you left off.
Free Questions › CFA › Economics
Free CFA Economics Practice Questions & Answers
2,050 exam-style Economics questions. Pick your answer, hit Check answer, and see the worked solution — free to start, no signup.
100% free · No login to startQuestion 2011
An exchange rate always involves:
Select an option first.
Correct answer: A — One currency only
Explanation: ✘ Why others wrong: A: Impossible—exchange rates require two currencies. C & D: These describe commodity or asset pricing, not FX rates.
Question 2012
In the quote USD/EUR = 1.1700, the base currency is:
Select an option first.
Correct answer: B — EUR
Explanation: ✘ Why others wrong: A: USD is the price currency. C & D: Exchange rates always have one base currency.
Question 2013
If USD/EUR decreases, this means:
Select an option first.
Correct answer: A — The euro is appreciating
Explanation: ✘ Why others wrong: A: Appreciation would require the rate to rise. C: USD is appreciating, not depreciating. D: Currencies cannot both weaken relative to each other.
Question 2014
Nominal exchange rates differ from real exchange rates because real rates:
Select an option first.
Correct answer: B — Adjust for relative price levels between countries
Explanation: ✘ Why others wrong: A: Real rates require price levels. C: Real rates can be higher or lower. D: Real rates are calculated, not set by governments.
Question 2015
Purchasing power parity (PPP) states that:
Select an option first.
Correct answer: B — Identical goods should cost the same across countries in the long run
Explanation: ✘ Why others wrong: A: Exchange rates fluctuate constantly. C: Inflation is central to PPP adjustments. D: PPP assumes no barriers, but in reality barriers exist.
Get the full CFA question bank — free
Drop your email and we'll send you fresh CFA practice questions, fully worked solutions and exam-deadline reminders. No spam — unsubscribe in one click.
Want to save your score and take a full mock exam? Create a free account →
Question 2016
PPP does not hold well in practice because:
Select an option first.
Correct answer: B — Many goods are non-tradable and markets have frictions
Explanation: ✘ Why others wrong: A: Goods differ across countries. C: Exchange rates deviate from PPP frequently. D: Inflation rates differ widely.
Question 2017
A higher real exchange rate (domestic/foreign) means:
Select an option first.
Correct answer: A — Domestic consumers can buy more foreign goods
Explanation: ✘ Why others wrong: A & C: These describe a lower real exchange rate. D: Purchasing power falls, not rises.
Question 2018
The real exchange rate formula includes:
Select an option first.
Correct answer: B — Nominal exchange rate × (foreign price level / domestic price level)
Explanation: ✘ Why others wrong: A: Price levels must be included. C & D: Not part of the formula.
Question 2019
Deviations from PPP persist because:
Select an option first.
Correct answer: C — All goods are tradable
Explanation: ✘ Why others wrong: A: Adjustments are slow. C: Many goods are non-tradable. D: Inflation differs widely.
Question 2020
The buy side of the FX market includes:
Select an option first.
Correct answer: B — Corporations, funds, hedge funds, and retail traders
Explanation: ✘ Why others wrong: A, C, D: These are subsets, not the full buy side.
Question 2021
Real money accounts are distinguished by:
Select an option first.
Correct answer: B — Restrictions on leverage and derivatives
Explanation: ✘ Why others wrong: A: Opposite of real money constraints. C: They invest, not primarily speculate. D: Many are private institutions.
Question 2022
Leveraged accounts include:
Select an option first.
Correct answer: B — Hedge funds and high-frequency traders
Explanation: ✘ Why others wrong: A: Pension funds are real money accounts. C: Tourists are retail. D: Central banks are public sector participants.
Question 2023
Retail FX accounts have grown because:
Select an option first.
Correct answer: B — Electronic trading reduced barriers to entry
Explanation: ✘ Why others wrong: A: FX is not restricted. C & D: Individuals can trade FX widely.
Question 2024
Governments participate in FX markets primarily to:
Select an option first.
Correct answer: B — Conduct cross-border transactions and implement policy
Explanation: ✘ Why others wrong: A: Governments do not speculate. C: Many hold large reserves. D: They do not replace private investors.
Question 2025
Central banks intervene in FX markets when:
Select an option first.
Correct answer: C — They want to eliminate trade
Explanation: ✘ Why others wrong: A: No intervention needed when stable. C: Trade elimination is not a goal. D: FX markets operate continuously.
Question 2026
Sovereign wealth funds (SWFs) differ from central banks because:
Select an option first.
Correct answer: A — SWFs pursue investment objectives
Explanation: ✘ Why others wrong: B: Only central banks set policy. C: SWFs hold large foreign assets. D: SWFs actively trade FX.
Question 2027
Tier-one FX banks dominate the sell side because:
Select an option first.
Correct answer: B — They have global client bases and advanced trading systems
Explanation: ✘ Why others wrong: A: They invest heavily in technology. C: They trade many currencies. D: Quoting prices is a core function.
Question 2028
Spot, forward, and swap FX transactions differ because:
Select an option first.
Correct answer: A — Spot settles immediately; forwards settle later; swaps combine spot and forward
Explanation: ✘ Why others wrong: B & C: Settlement timing differs. D: All involve exchange rates.
Question 2029
The FX market is essential for global trade because:
Select an option first.
Correct answer: B — Currency exchange enables cross-border trade and capital flows
Explanation: ✘ Why others wrong: A: Trade requires currency exchange. C: Corporations, banks, and governments also need FX. D: Exchange rates fluctuate constantly.
Question 2030
A currency code like “EUR” can refer to:
Select an option first.
Correct answer: B — Either the euro currency or the EUR/USD exchange rate depending on context
Explanation: ✘ Why others wrong: A: Too narrow—codes also denote exchange rates. C: Not always an exchange rate. D: Codes do not represent economies.
Question 2031
In the quote USD/EUR = 1.1700, this means:
Select an option first.
Correct answer: C — 1 USD buys 1.1700 GBP
Explanation: ✘ Why others wrong: A: Reverses base and price currencies.
Question 2032
If USD/EUR rises, this means:
Select an option first.
Correct answer: A — The euro is appreciating
Explanation: ✘ Why others wrong: B: Depreciation would require the rate to fall. C: USD is depreciating, not appreciating. D: Both cannot appreciate relative to each other.
Question 2033
Nominal exchange rates measure:
Select an option first.
Correct answer: B — The price of one currency in terms of another
Explanation: ✘ Why others wrong: A, C, D: These describe real exchange rates.
Question 2034
Real exchange rates adjust nominal rates for:
Select an option first.
Correct answer: B — Relative price levels
Explanation: ✘ Why others wrong: A, C, D: Not part of the real exchange rate formula.
Question 2035
PPP predicts that:
Select an option first.
Correct answer: A — Exchange rates equalize purchasing power across countries
Explanation: ✘ Why others wrong: B: Exchange rates fluctuate. C: Inflation is central to PPP. D: PPP is a long-run tendency, not exact equality.
Question 2036
PPP fails in practice mainly because:
Select an option first.
Correct answer: B — Trade barriers and non-tradable goods prevent equalization
Explanation: ✘ Why others wrong: A: Many goods are not tradable. C: Inflation differs widely. D: Exchange rates adjust slowly.
Question 2037
The Big Mac Index illustrates that:
Select an option first.
Correct answer: B — Prices of identical goods vary widely across countries
Explanation: ✘ Why others wrong: A & C: PPP does not hold perfectly. D: Big Macs are not traded internationally.
Question 2038
A higher real exchange rate (domestic/foreign) implies:
Select an option first.
Correct answer: B — Foreign goods are more expensive
Explanation: ✘ Why others wrong: A: Would require a lower real rate. C: Purchasing power falls. D: Real exchange rate does not determine inflation.
Question 2039
A country’s trade balance must be offset by:
Select an option first.
Correct answer: A — Government spending
Explanation: ✘ Why others wrong: A, C, D: These do not directly offset trade balances.
Question 2040
A trade surplus implies:
Select an option first.
Correct answer: A — The country saves more than it invests
Explanation: ✘ Why others wrong: B: Describes a deficit. C: Borrowing occurs with deficits. D: Opposite of a surplus.
More free CFA topics
Quantitative Methods1,213
Portfolio Management1,079
Fixed Income908
Financial Statement Analysis904
Corporate Issuers884
Portfolio Construction605
Alternative Investments540
Specialized Pathway - Private Markets500
Asset Allocation499
Derivatives498
Equity390
Performance Measurement295
Specialized Pathway - Portfolio Management253
Derivatives and Risk Management131
Ten questions in
- The ones you miss are saved as a drill you can repeat
- Your place is kept, on this device and any other
- A streak, if that is the thing that gets you back tomorrow
Every question on this page stays free and open either way.