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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 2041
A trade deficit implies:
Select an option first.
Correct answer: D — The capital account is in deficit
Explanation: ✘ Why others wrong: A: Surplus, not deficit. C: Opposite. D: Capital account must be in surplus.
Question 2042
Capital controls restrict:
Select an option first.
Correct answer: C — Tourism
Explanation: ✘ Why others wrong: A: Trade controls restrict goods, not capital. C & D: Not related.
Question 2043
Free movement of capital is beneficial because:
Select an option first.
Correct answer: C — It prevents foreign firms from entering
Explanation: ✘ Why others wrong: A, C, D: Opposite of economic theory.
Question 2044
Foreign direct investment (FDI) benefits host countries by:
Select an option first.
Correct answer: B — Bringing capital, skills, and management practices
Explanation: ✘ Why others wrong: A: FDI increases, not reduces, technology transfer. C: FDI may compete but does not eliminate all firms. D: Productivity usually rises.
Question 2045
The buy side of FX includes:
Select an option first.
Correct answer: A — Only hedge funds
Explanation: ✘ Why others wrong: A, C, D: Too narrow.
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Question 2046
Real money accounts are typically:
Select an option first.
Correct answer: B — Restricted in leverage and derivatives
Explanation: ✘ Why others wrong: A: Opposite. C & D: Not definitions.
Question 2047
Retail FX trading has grown because:
Select an option first.
Correct answer: B — Electronic platforms lowered barriers
Explanation: ✘ Why others wrong: A, C, D: Incorrect.
Question 2048
Governments participate in FX markets mainly to:
Select an option first.
Correct answer: B — Conduct cross-border operations and policy actions
Explanation: ✘ Why others wrong: A: Governments do not speculate. C: They do not replace private investors. D: FX operations do not directly target inflation.
Question 2049
FX reserves are held primarily to:
Select an option first.
Correct answer: B — Support currency stability and meet external obligations
Explanation: ✘ Why others wrong: A: Reserves are not speculative. C & D: Not functions of reserves.
Question 2050
Sovereign wealth funds differ from central banks because:
Select an option first.
Correct answer: A — They pursue investment returns
Explanation: ✘ Why others wrong: B: Only central banks set policy. C: SWFs hold large foreign assets. D: SWFs actively trade FX.
Question 2051
Tier-one FX banks dominate 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. C: They trade many currencies. D: Quoting prices is essential.
Question 2052
Spot FX transactions settle:
Select an option first.
Correct answer: A — Immediately or within two business days
Explanation: ✘ Why others wrong: B: Describes forwards. C & D: Not true.
Question 2053
Forward FX contracts are used to:
Select an option first.
Correct answer: B — Lock in a future exchange rate
Explanation: ✘ Why others wrong: A: Spot settles immediately. C: Forwards hedge but do not eliminate all risk. D: Forwards complement, not replace, spot.
Question 2054
FX swaps combine:
Select an option first.
Correct answer: B — A spot and a forward trade
Explanation: ✘ Why others wrong: A & C: Only one leg is spot. D: Swaps do exchange currencies.
Question 2055
The BIS Triennial Survey measures:
Select an option first.
Correct answer: B — Global FX market turnover
Explanation: ✘ Why others wrong: A, C, D: Not BIS survey topics.
Question 2056
Spot transactions represent:
Select an option first.
Correct answer: D — Only retail trading
Question 2057
A country that imports more than it exports must:
Select an option first.
Correct answer: B — Borrow from abroad or sell assets
Explanation: ✘ Why others wrong: A, C, D: Not required by identity.
Question 2058
A country with a trade surplus must:
Select an option first.
Correct answer: B — Lend abroad or buy foreign assets
Explanation: ✘ Why others wrong: A: Borrowing occurs with deficits. C: Surplus implies high savings. D: Surplus means exports > imports.
Question 2059
Capital inflows allow countries to:
Select an option first.
Correct answer: A — Invest more than domestic savings alone would allow
Explanation: ✘ Why others wrong: B: Opposite. C: Capital inflows increase foreign ownership. D: FX markets remain essential.
Question 2060
Foreign investment can benefit local firms by:
Select an option first.
Correct answer: B — Creating supplier networks and spillovers
Explanation: ✘ Why others wrong: A: FDI increases technology transfer. C: Competition may increase but not eliminate all firms. D: Productivity usually rises.
Question 2061
Capital controls may restrict:
Select an option first.
Correct answer: C — Tourists from traveling
Explanation: ✘ Why others wrong: B: Trade controls, not capital controls. C & D: Not related.
Question 2062
A country with FX-scarce conditions may:
Select an option first.
Correct answer: B — Restrict citizens from investing abroad
Explanation: ✘ Why others wrong: A: Opposite. C & D: Would worsen FX scarcity.
Question 2063
Foreign firms investing locally may bring:
Select an option first.
Correct answer: B — New technology and management practices
Explanation: ✘ Why others wrong: A: Opposite. C: Productivity usually increases. D: Competition often increases.
Question 2064
A country with a fiscal surplus (T > G) contributes to:
Select an option first.
Correct answer: B — A trade surplus
Explanation: ✘ Why others wrong: A: Deficits occur when savings < investment. C: Surplus does not imply higher imports. D: Surplus increases savings.
Question 2065
A country with S < I (savings less than investment) must:
Select an option first.
Correct answer: B — Run a trade deficit
Explanation: ✘ Why others wrong: A: Surplus requires S > I. C: Borrowing is required. D: Exports alone cannot fix S < I.
Question 2066
Capital inflows can raise growth because they:
Select an option first.
Correct answer: B — Provide funds for productive capacity
Explanation: ✘ Why others wrong: A: Opposite. C: Competition may rise but not eliminate all firms. D: FDI increases technology transfer.
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