14 CFA Exam Level 1 Practice Questions Free Online

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Real Risk-Free Rate 2. Expected Inflation 3. Default-Risk Premium 4. Liquidity Premium 5. Maturity Premium

• The principle of time value of money
• The Five Components of Interest Rates
• Real Risk-Free Rate
• The stated annual rate

The notion that a given sum of money is more valuable the sooner it is received, due to its capacity to earn interest.

• The stated annual rate
• The Five Components of Interest Rates
• The principle of time value of money
• The effective annual yield...

= annuity payment A/interest rate r

• PV of a perpetuity
• PV
• Maturity Premium
• Liquidity Premium

= (1 + Periodic interest rate)^m - 1(Where: m = number of compounding periods in one year, and periodic interest rate = (stated interest rate) / m)

• The effective annual yield...
• The stated annual rate
• Expected Inflation
• Effective annual rate (EAR)

= PV * (1 + r)^N

• Liquidity Premium
• PV
• FV
• Maturity Premium

...quarterly, monthly, daily and even continuously.

• The principle of time value of money
• In practice, institutions compound interest more frequently, either ...
• The Five Components of Interest Rates
• The effective annual yield...

This assumes no risk or uncertainty, simply reflecting differences in timing: the preference to spend now/pay back later versus lend now/collect later.

• Default-Risk Premium
• PV of a perpetuity
• Real Risk-Free Rate
• Maturity Premium

What is the chance that the borrower won't make payments on time, or will be unable to pay what is owed? This component will be high or low depending on the creditworthiness of the person or entity involved.

• Default-Risk Premium
• Liquidity Premium
• Real Risk-Free Rate
• Maturity Premium

(or quoted rate) is the interest rate on an investment if an institution were to pay interest only once a year.

• The stated annual rate
• The effective annual yield...
• Expected Inflation
• Effective annual rate (EAR)

51 CFA Exam Level 1 Sample Questions and Answers

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Assets and liabilities increase by the bond proceeds +Interest expense is equal to the coupon payment+Proceeds are reported as cash inflow from financing activities and coupon payments are reported as cash outflows from operating activities+Repayment of principal is reported as cash outflow from financing activities

• Premium Bond Effects
• Par Value Bond Effects
• Revaluation Model
• Discount Bond Effects

+Reported on the balance sheet as above face value+As the premium is amortized the book value of the bond will decrease until it equals par value at maturity

• Recognition of DTA
• Premium Bond Effects
• Period Costs
• Discount Bond Effects

+Nature of liabilities+Maturity dates+Stated and effective interest rates+Call provisions and conversion privileges+Restrictions imposed by creditors+Assets pledged as security+The amount of debt maturing in each of the next 5 years

• Fixed Income Financial Statement Disclosures
• Inventory Disclosure
• Income Tax Expense
• Lease Disclosures

= Beginning Inventory + Purchases - Ending Inventory

• Derecognition
• Lease Disclosures
• Product Costs
• Cost of Goods Sold

A gain or loss is recognized by subtracting the redeem price from the book value of the bond liability at the redeem date;GAAP requires any remaining unamortized bond issuance costs must be written off and included in the gain or loss calculation;IFRS requires no write down since the legal and issuance costs have already been deducted

• If Company Redeems Bonds
• Temporary Difference
• Income Tax Expense
• Affirmative Covenants

+Less costly financing+Reduced risk of obsolescence +Less restrictive provisions+Off-balance-sheet financing+Tax reporting advantages

• Sales-Type Lease
• Operating Lease
• Benefits of a Lease
• Direct Finance Lease

Only done on assets with finite lives and is done the same as depreciation

• Amortization
• FIFO
• LIFO
• Derecognition

Only contains common stock and nonconvertible stock

• Accelerated Depreciation
• Simple Capital Structure
• Finance (Capital) Lease
• Income Tax Expense

Created when taxes payable are greater than income tax expense;POST-EMPLOYMENT BENEFITS, WARRANTY EXPENSES AND TAX LOSS CARRYFORWARDS ARE MOST COMMON CAUSES;Must be reduced if it is unlikely to be used under GAAP

• Deferred Tax Asset
• Interest Expense
• Taxes Payable
• Income Tax Expense

When the lease is treated like ownership for tax reporting to allow for the deduction of depreciation and interest expenses but the lease does not appear on the balance sheet

• Operating Lease
• Synthetic Lease
• Interest Expense
• Sales-Type Lease

The value reported on the financial statements net of depreciation

• Liability's Tax Base
• Asset's Tax Base
• Operating Lease
• Asset's Carrying Value

88 CFA Sample Exam Level 2 Questions on Corporate Finance

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Acquirer in hostile takeover offers to buy shares directly from the target shareholders and each shareholder either accepts or rejects offer

• Bear Hug
• Spin-Off
• Cash Offering
• Tender Offer

Creating a new, independent company by giving its equity to current shareholders and parent company gets no cash in transaction

• Bear Hug
• Spin-Off
• Poison Put
• Split-Off

When managers are allowed to increase their allocated capital budget if they can justify to senior management that the additional funds will create shareholder value

• Soft Capital Rationing
• Forward Integration
• Hard Capital Rationing
• Fundamental Options

After a hostile takeover offer, the target can defend itself by making a counteroffer to acquire the acquirer

• Expansion Options
• Pac-Man Defense
• White Squire Defense
• White Knight Defense

-Divides operating cash flows based on claims of debt and equityholders that provide capital to the company, and the sum of the present values of the claims is the value of the company

• Liquidation
• Price Setting Option
• Expansion Options
• Claims Valuation Approach

System of principles, policies, procedures and clearly defined responsibilities and accountabilities used by stakeholders to overcome conflicts of interest

• Corporate Governance
• Accounting Income
• Cash Offering
• Objectives of Corporate Governance

-Reflect the sale of the old asset in the calculation of the initial outlay-Calculate the incremental operating cash flows as the cash flows from the new asst minus the cash flow from the old asset

• Equivalent Annual Annuity Approach
• Key Differences in Evaluating a Replacement Project
• Target Payout Ratio Adjustment Model
• Long-Term Residual Dividend Model

Acquirer moves down the supply chain towards the raw materials

• Backward Integration
• Timing Options
• Consolidation
• Liquidation

-Dividends based on earnings less funds the firm retains to finance the equity portion of its capital budget-Model based on investment opportunity schedule, target capital structure, access to and cost of external capital

• Residual Income
• Real Options
• Subsidiary Merger
• Residual Dividend Model

A winner of a bidding war likely paid too much for the company

• Bonding Costs
• Winner's Curse
• Residual Income
• Horizontal Merger

32 CFA Sample Exam Level 2 2015 Questions on Corporate Finance

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The security is riskier than average

• Beta
• Beta > 1.0
• Beta = 1.0
• Beta < 1.0

The risk that a investor will face if only one asset was held

• Sinking fund
• Investment risk
• Takeover
• Stand-alone risk

-Measures a stock's market risk, and shows a stock's volatility relative to the market.-Indicates how risky a stock is if the stock is held in a well diversified portfolio.

• Proxy
• Beta
• Risk
• Bond

stated interest rate paid by the issuer

• Coupon rate
• Growth rate
• Corporate Bonds
• Par Value

A bond that has interest payments based on an inflation index so as to protect the holder from inflation.

• Foreign Bonds
• Index bond
• Bond
• Sinking fund

Bonds issued by the federal government. These bonds have no default risk; however these bonds' prices do decline when interest rates rise.

• Bond
• Treasury Bond
• Index bond
• Foreign Bonds

Bonds issued by a foreign government or a foreign corporation.

• Corporate Bonds
• Foreign Bonds
• Treasury Bond
• Index bond

the part of the firms life cycle in which it grows faster than the economy as a whole

• Growth rate
• Super-normal growth
• Municipal Bonds
• Coupon rate

a document giving one person the authority to act for another, typically the power to vote

• Beta
• Proxy
• Bond
• Risk

Value of a stock is the present value of the future dividends expected to be generated by the stock.Po= D1/(1+rs)^1 + D2/(1+r2)^2 + ...

• Discount dividend model
• Municipal Bonds
• Classified stock
• Founders shares

The face amount of the bond, which is paid at maturity.

• Risk
• Takeover
• Par Value
• Proxy

A long-term debt instrument in which a borrower agrees to make payments of principal and interest, on specific dates, to the holder.

• Risk
• Proxy
• Beta
• Bond

32 Free CFA Level 1 Mock Exam Questions

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When one event's probability affects the other events*P(A|B) = The probability of A given B

• Total Probability
• Conditional Probability
• Addition of Probability
• Empirical Probability

The mean of n numbers expressed as the reciprocal of the arithmetic mean of the reciprocals of the numbers

• Harmonic Mean
• Sample Skew
• Negative Skew
• Platykuric

Holding Period Return = (ending value/beginning value) - 1 OR= (ending value - beginning value + cash flow received)/(beginning value) - 1

• Money Market Yield
• Holding Period Yield
• Bond Equivalent Yield
• Bank Discount Yield

The percentage of the observations that lie within k standard deviations of the mean is at least 1 - (1/k^2) when k > 1

• Chebyshev's Inequality
• Effective Annual Rate
• Bayes' Formula
• Subjective Probability

= (risk free rate) + (default risk premium) + (liquidity premium) + (maturity risk premium)

• Required Interest Rate
• Measurement Scales
• Effective Annual Rate
• Independence Test

Same as IRR

• Money Weighted Return
• Time Weighted Return
• Negative Skew
• Money Market Yield

Events are independent if P(A|B) = P(A)

• Negative Skew
• Sample Skew
• Independence Test
• Harmonic Mean

P(A and B) = P(A) * P(B) if independent events

• Conditional Probability
• Empirical Probability
• Joint Probability
• Total Probability

Formula to find the number of possible ways of selecting r items from a set of n items;C = (n!) {(n - r)! * r!}

• Combinational Ordering
• Conditional Probability
• Harmonic Mean
• Permutational Ordering

Dividing the covariance between returns of two assets by the individual standard deviations of returns of the two assets

• Chebyshev's Inequality
• Two Assets' Correlation Coefficient
• Permutational Ordering
• Bayes' Formula

= (1 + HPR) ^ (365/days until maturity) - 1

• Effective Annual Rate
• Subjective Probability
• Money Market Yield
• Effective Annual Yield

Used to update a given set of prior probabilities for a given event in response to new information;(Updated Probability) = {(Probability of new information of a given event) (Unconditional probability of new information)} * (Probability of event)

• Bayes' Formula
• Chebyshev's Inequality
• Harmonic Mean
• Mesokurtic

Comes from a personal judgement

• A Priori Probability
• Total Probability
• Joint Probability
• Subjective Probability

Comes from a formal reasoning and inspection process; an objective probability

• Total Probability
• Empirical Probability
• A Priori Probability
• Joint Probability

80 Free CFA Level 1 Practice Exam Questions

80 Free CFA Level 1 Practice Exam Questions includes core concepts illustrated specifically and accessibly, that helps you so much to level up your ability. A variety of exam practice questions aid you in attaining the basic knowledge from the curriculum and polish up skills for the upcoming CFA level 1 exam. Finish all the following questions to know your weakness and strength and don’t forget to leave your ideas in the comment below!
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When each existing share is divided into multiple shares;No change in owners wealth;Share price drops accordingly; Historically, stocks rise after a split because it is seen as a positive sign

• Stock Dividend
• Discount Basis
• Stock Split
• Project Beta

Prevents shareholders from attending all the meetings and therefore exercising their full voting rights

• Require Shareholder Attendance to Vote Hold Their Meetings on the Same Day but in Different Locations
• Approaches to Calculating Cost of Equity
• Selecting an External Auditor
• Criteria for Capital Budgeting Method

Where the cost of one of the WACC components changes;= Amount of Capital at which the Component's Cost Changes/Weight of the Component in Capital Structure

• Break Point
• NPV Profile
• Poison Pill
• Beta

The set of internal controls, processes and procedures by which firms are managed and defines the rights, roles and responsibilities of management

• Declaration Date
• Corporate Governance
• Total Leverage
• CAPM Approach

= (Percent Change in EBIT)/(Percent Change in Sales)= [Quantity of Units Sold (Price per Unit - Variable Cost)] /[Quantity of Units Sold (Price per Unit - Variable Cost) - Fixed Cost] = (Sales - Total Variable Costs) / (Sales - Total Variable Cost - Fixed Costs]

• Degree of Operating Leverage
• Operating Cash Cycle
• Role of Nominations Committee
• Degree of Financial Leverage

Accelerate cash outflows

• Liquidating Dividend
• Liquidity Pull
• Poison Pill
• Dividend Dates

*Involves large transactions*Same principles apply to most corporate decision making *Objective way to maximize shareholder value

• Uncommitted Line of Credit
• Why Capital Budgeting is Important
• Criteria for Capital Budgeting Method
• Committed Line of Credit

Looking at a publicly traded security of a company involved directly in the business the project is engaged in;Company's beta is also a product of its capital structure and must be adjusted accordingly to fit the need of the project;Delever the comparable beta and relever for the project in question

• Takeover Defenses
• Selection Methods
• Beta Pure Play Method
• Regular Dividend

~Beta uses historical data and sensitive to the length of time and frequency of data~Affected by which index is chosen to represent the market return~Betas are believed to revert to 1 after time and the estimate may need to be adjusted accordingly ~Betas of smaller firms may need to be adjusted upward to reflect risk inherent in small firms not captured by Beta calculation

• Country Risk Premium
• Liquidity Pull
• Problems with Pure Play
• Profitability Index

= Fixed Operating Costs/(Price - Variable Cost per Unit)

• Flotation Costs
• Incremental Cash Flow
• Operating Break Even Cost of Sales
• Break Even Quantity of Sales

How to Pass CFA Level 1 2015 – Top Tips for Success

Thousands of candidates all around the world will be present for CFA level 1 exam in June, 2015. There are many candidates studying like crazy for the last few days. Also, a few people have completed their course as well as thorough revision. Here are last-minute tips in How to Pass CFA Level 1 2015 – Top Tips for Success which would help you raise the confidence in the last few days.

1. Make sure that you are holding all the testing regulations and policies in the palm of your hand and take note all the important things before taking the test.

2. Try to do as much practice problems as possible during the last few days. Practice will help you familiarize with the exam style and condition as well as be aware of type of problems that can be appeared in the exam day.

3. Set up an effective strategy about how you will approach the exam and how you will learn for the exam. A secret tip is that you should finish well both the morning and afternoon session if you want to pass the exam. Don’t spend all of your energy to the morning session and after that you can not perform all the sections in the afternoon session. Keep balance to get the highest effect!

4. Remember to invest your time to take mock tests in the last 2 weeks to perfect your exam preparation. You should take the test under the time limit properly in order to know the way to distribute your time into the sections reasonably, from that, having a smart strategy.

5. Do the revision in the last 2-3 days by reading LOS. By that way, you can understand and remember the concepts and formula related to the LOS.

6. Try your best to deal with all the problems and don’t overlook any question. If you can not answer any of them, make an educated guess by excluding the options.

7. One important thing which many candidates do not pay attention in the exam day is getting used to the calculator. As far as you know, you have to perform the calculations such as NPV, IRR, present value, future value and so on. Therefore, don’t forget prepare additional batteries for your calculator and check it carefully before the exam day. Also, it would be great if you can arrange the extra calculator for exam day.

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54 CFA Level 2 Practice Questions on Quantitative Methods

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Describe the change in Y for a one unit change in X= covariance xy / variance x

• Slope coefficient (b hat)
• partial slope coefficient
• Multicollinearity
• log-linear trend models

none of the coefficients is significantly different than zero while F-test is statistically significant and the R square is high

• Ways to correct for multicollinearity
• ways to detect multicollinearity
• ways to detect serial correlation
• Multicollinearity

1. Parameter Instability (linear relationships can change over time, data from yesterday may not be useful for forecast)2. Even if it does - its usefulness is limited because other market participants will know as well3. If the assumption do not hold - the interpretation and test of hypotheses may not hold

• Limitations of Regression
• Limitation of Correlation Analysis
• Assumption of Linear Regression
• mean reversion

whether at least one independent variable in a set of independent variables explains a significant portion of the variation of the dependent variable = MSR / MSE

• ANOVA
• first differencing
• Multicollinearity
• F-statistic in ANOVA

model based on logistic distribution to describe qualitative DV

• logit model
• ANOVA
• unit root
• random walk

situation in which terms are correlated with one anotherpositive autocorrelation: positive regression error in one time period increases the probability of observing a positive regression error negative autocorrelation: positive error in one period increases the probability of observing a negative error

• Correlation Coefficient (r)
• standard error of the estimated autocorrelation
• Serial correlation OR autocorrelation
• Ways to correct serial correlation

used to compare the accuracy of autoregressive models in forecasting out-of-sample values smaller result suggest better accuracy

• mean reverting level
• root mean squared error (RMSE)
• Sum of the squared error (SSE)
• Sum of Squared Errors (SSE)

= 1 / sq root T where T is the number of observations

• ways to detect serial correlation
• T-Test for estimated regression
• standard error of the estimated autocorrelation
• Ways to correct serial correlation

1. using robust standard error (White-corrected st. errors to recalculate t-statistics)2. using generalized least squares (modifying the equation)

• unconditional heteroskedasticity
• Ways to correct serial correlation
• conditional heteroskedasticity
• Ways to correct heteroskedasticity

29 Free CFA Level 2 Practice Questions on Ethics

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freq of update report and how to discontinue coverage

• must be documented and go through compliance
• violate if not correct the audience
• can accept travel expense but nothing else
• quarter and must issue a final report to clients

can investment manager include high risk investment into portfolio of some conservative investors but the portfolio overal has no restriction on high risk?

• must be documented and go through compliance
• yes, because new prudent only evaluate the portfolio as a whole
• can accept travel expense but nothing else
• quarter and must issue a final report to clients

supervisor responsibility apply to whom

• not only officers and their direct reports but also to other investment pro who have employees subject to their control
• yes, because new prudent only evaluate the portfolio as a whole
• not allowed unless extreme hardship. must provide personal investment of self and family at least annually
• prohibit under all circumstance without the permission of the investor

disclosure of soft dollar standard must address what?

• quarter and must issue a final report to clients
• yes, because new prudent only evaluate the portfolio as a whole
• must disclose the achieved result was a team effort and can only claim for a portion in this result
• must address whether trades generating brokerage involved transaction conducted on a principal basis

potential client can be approached once leaving firm or not

• no
• 7 yrs
• yes
• 60days

soft dollars use

• only require disclosure if firm manage or co-manage the deal
• candidate cannot usecharterholder can use on biz card or letterhead of individual not in company letterhead
• use the more strict rule. raw data feeds not added value research
• office equipment - nofinancial tv - yes if use in decision makingbloomberg - no even it is used for client acceess to info, only yes if used for decicion making. if both then sharesoftware and computer- share, must be reevaluate annually.

29 Free CFA Level 2 Practice Exam on Corporate Finance

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managers cant change company values by using more or less debt

• MM without tax states..?
• expected DPS
• MM prop 1 states...?
• pre-offer defense

poison, put, staggered, restrictive voting , parachuteP-P-P-S-R : people pay put sex right

• pre-offer defense
• value of equity
• economic income
• expected DPS

EP = NOPAT - $WACC = EBIT (1-tax) - WACC xCapital

• economic profit
• value of equity
• expected DPS
• economic income

cap ro ro da voi cap re dero+ ro (1-t)d/e = re + rd(1-t)d/e

• value of equity
• equation of all equity company
• Equivalent Annual Annuity (EAA)
• comparable company

first, calculate NPV, then EAA = , in which NPV = PV, key in N, I/Y and FV = 0

• Equivalent Annual Annuity (EAA)
• equation of all equity company
• initial outlay
• value of equity

value = ebit (1-t)/ wacc

• MM equation on value of company and WACC
• equation of Value of company before and after leverage
• comparable company
• equation of all equity company

E and EAU 1- Eliminate2- ensure asset use

• comparable transaction
• attribute of corporate governance system
• equation of all equity company
• objective of corporate governance system

D-D-M-I-F-T (Don't do mad if think) <--> ATTRIBUTE1-Delinear (D)2-Define manager (DM)3-Identifiable / measurable (I)4-Fairness (F)5-Transparency (T)

• comparable transaction
• objective of corporate governance system
• pre-offer defense
• attribute of corporate governance system

= NPV of the investment project or sum of EP discount by WACC in every year

• MVA
• expected DPS
• PI
• AAR

= avg net income/ avg book value

• AAR
• PI
• MVA
• expected DPS

FCinv + NWCinv- Salvage at time 0 + tax (Salvage at 0 - book at 0)

• comparable company
• equity carve out:
• AAR
• initial outlay

shift cash flow to earlier years so earlier years operating income after tax and terminal cf both lower but NPV is higher

• objective of corporate governance system
• impact of switching from straight line to accelerate depr
• MM without tax states..?
• attribute of corporate governance system

Top 10 Effective Study Tips to Pass CFA Level 3 Exam

You passed the CFA level 2 exams, congratulations! you are on your way to get a CFA designation. Many candidates study like crazy for the exam but it seems to be insufficient. Truly, Level 2 may be the hardest exam because of the huge study material. Therefore, Level 3 seems like to be the most underrated of all. Yet, after passing the first 2 exams, for those who have ever experienced in the Level 3 exam, it is agreed that the level 3 exam turns out to be more challenging than many candidates expect for many reasons. Following is Top 10 Effective Study Tips to Pass CFA Level 3 Exam to help you well prepare for Level 3 and understand how to make it work.

Challenges of CFA Level 3 Exam

1. In terms of the drop-out rate, Level 3 will often be the lowest of all three levels. So, candidates often underestimate it compared to Level 1 and 2, consequently, they fail.

2. The difference in format of Level 3 is essay questions in the morning session and item set questions in the afternoon session. Not similar to the two previous level exams in multiple choice formats, it’s the first time you need to familiarize essay questions in the CFA exam.

3. It’s silly if you think it doesn’t take much time to cover the CFA curriculum of Level 3 as it looks pretty thin. Really tricky! There is amazingly lots of dry and boring materials to run through.

4. Despite fewer LOS and Readings (as referred in the changes to both the topics and readings in CFA Level 3 exam), it brings itself various overtone and subtext and any corner of the curriculum can be asked from there.

5. Readings are much shorter but the range of real-situation problems they can ask is very extensive.

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24 CFA Level 2 Mock Exam 2015 Questions and Answers on Economics

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Spreads are increasing with maturity in general due to liquidity, counterparty and interest rate risk.

• Forward premium
• Cross rate
• Spreads and forwards
• Ask v. Offer

Exchange rate between two currencies implied by their exchange rates with a common third currency. Calculating these is simply unit conversion.

• Absolute PPP
• Relative PPP
• Ask v. Offer
• Cross rate

Interbank rates (duh)Size (larger size, larger spread)Relationship (can be important)

• Spreads and forwards
• Interbank spread factors
• Current account
• Dealer spread factors

R Nominal A - R nominal B = E inflation A - E inflation BIn other words, real rates are assumed to be constant (IRP) so differences in nominal rates are all about inflation

• Interbank spread factors
• Triangular arbitrage
• International Fisher Effect
• Relative PPP

A currency is quoted at a forward premium relative to a second currency if the forward price in units of the second currency is higher than the spot price. A forward discount is, shockingly, the opposite. Can calculate it as Forward price - spot price

• Fisher equation
• Cross rate
• Forward premium
• Current account

(FPt - FP) * contract size where FPt is the current time, and FP is the original price agreed to.Well this is pretty obvious, isn't it?

• Forward premium
• Value of a forward prior to expiration
• Value of a forward at maturity
• Value of a forward an initiation

They mean the same thing.

• Absolute PPP
• Cross rate
• Ask v. Offer
• Relative PPP

Nominal R = Real R + Inflation

• Fisher equation
• Forward premium
• Ask v. Offer
• Cross rate

Exchange of goods, services, investment income, and gifts. Summarizes whether a country is selling more goods to a country than it is buying from it, which is a current account surplus.

• Current account
• Cross rate
• Office reserve account
• Forward premium

Requires LOOP across countries, pretty simple concept

• Cross rate
• Relative PPP
• Absolute PPP
• Ask v. Offer

spread. Often quoted in pipsBuy at ask, Sell at bid

• Interbank spread factors
• International Fisher Effect
• Difference between bid and offer
• Office reserve account

Changes should offset the price impacts of an inflation differential

• Relative PPP
• Cross rate
• Ask v. Offer
• Absolute PPP

Capital flows

• Dominant factor influencing exchange rates
• How the current account impacts exchange rate
• Difference between bid and offer
• Portfolio Composition Mechanism

which currencies are involvedtime of day (if both Lon and NYC are open, more liquidity)Volatility (higher vol, higher spreads)

• Spreads and forwards
• Triangular arbitrage
• Dealer spread factors
• Interbank spread factors

They increase supply of a given currency in foreign markets (makes sense). This should (theoretically) depreciate the currency as restore the deficit to balance. Depends on:1) the size of the initial deficit2) Influence of FX on prices3) Influence of price changes (from FX) on demand for goods

• Current account
• Dominant factor influencing exchange rates
• How the current account impacts exchange rate
• Financial account (capital account)