ACCA F9 September 2016 Exam Section B Questions 16-20

Comments

1. vidushani says

   June 6, 2021 at 12:47 pm

   Dear sir, Appreciate if you can explain the statement C in the last question please 🙂

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2. anushka151 says

   September 8, 2020 at 4:14 pm

   with regards to Q19 again.

   In the first few chapters that explain the economics, it says the Inflation and interest rates move in opposite directions, due to restriction of money supple etc.
   but according to the Fisher formula, interest rate and inflation would obviously move in the same direction. So which logic should we be applying to this question?
   Thanks!

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   • John Moffat says

     September 8, 2020 at 4:41 pm

     I don’t know which chapters of which book you are referring to. However, in theory, in the long term interest rates and inflation do move in the same direction (and this is generally the case in practice as well as in theory).

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3. salman7 says

   March 3, 2017 at 4:09 pm

   Dear sir,

   In Question#19,
   The correct answer is: The euro will depreciate against the dollar because the dollar nominal interest rate is less than the euro nominal interest rate.

   The examiner has mentioned two points in the recommended answer:
   1. If the dollar nominal interest rate is less than the euro nominal interest rate, interest rate parity indicates that the euro will depreciate against the dollar.
   2. If the dollar inflation rate is less than the euro inflation rate, purchasing power parity indicates that the euro will appreciate against the dollar.

   My question: The interest rate and inflation rate both go together in the same direction in long term. Then why the examiner has said that if $ interest rate < Euro interest rate then the Euro will depreciate, whereas if $ inflation rate < Euro inflation rate then the Euro will appreciate. I think in both situation the Euro should depreciate.

   Thanks,

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   • John Moffat says

     March 3, 2017 at 6:50 pm

     It is a typing error. The choice of answer is however correct.

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     • salman7 says

       March 4, 2017 at 4:39 am

       So, the corrected statements are:
       1. If the dollar nominal interest rate is less than the euro nominal interest rate, interest rate parity indicates that the euro will depreciate against the dollar.
       2. If the dollar inflation rate is less than the euro inflation rate, purchasing power parity indicates that the euro will DEPRECIATE against the dollar.

       Please confirm. Thanks,

     • John Moffat says

       March 4, 2017 at 9:47 am

       Correct 🙂